- Yichun aims to quadruple lithium production by 2025
- The lithium price shift is clouding Yichun’s lepidolite outlook
- High extraction costs, mining tailings pose challenges
YICHUN, China, June 15 (Reuters) – On a steep dirt road from the Baishi Huashan lithium mine in southern China, trucks laden with silver-grey ore rumble toward a group of smelters in the valley below that have popped up to cash in on the battery boom for electric vehicles.
The city of Yichun, China’s most promising region for lithium, is the zero point in the country’s effort to reduce import dependency on the metal for the battery industry, which produces three-quarters of the world’s lithium-ion batteries.
By extracting the metal from a rock called lepidolite, Yichun aims to quadruple its output to about 350,000 tonnes of lithium carbonate equivalent (LCE) by 2025, or as much as the world’s largest exporter Australia produced last year.
However, with much higher production costs than other Chinese mining regions, Yichun is most vulnerable to the recent global drop in lithium prices, raising questions about how it will achieve its goal.
At the same time, concerns about the environmental impact of extracting lithium ore from lepidolite are growing, which has already led Yichun authorities to shut down a number of factories, further testing the country’s drive for self-reliance.
Monthly production in Yichun has fallen by about a third after China tried to curb a chaotic rush in the sector, while Beijing also slashed EV subsidies, boosting demand for lithium and driving up prices.
“Many investments in Yichun are now at risk after prices fell this year,” said Yang Yaohua, an analyst at Guosen Futures.
With global lithium demand expected to grow by 76% to 1.57 million tonnes of LCE between 2022 and 2025, according to Australian bank Macquarie, and China dependent on imports for 55% of its lithium, Beijing is looking to boost domestic production.
Yichun, a city of 5 million people surrounded by forest-covered mountains rich in lepidolite, is leading that advance.
By the end of last year, according to Yichun’s website, 202 companies, including battery giants CATL (300750.SZ) and Gotion High Tech (002074.SZ), had invested in the city’s smelters and mines.
For battery materials manufacturers, Yichun’s location is the main attraction. The mines are more accessible than the brine lakes in China’s western plateaus and the spodumene rock in southwestern Sichuan province.
To attract investment, the city has rolled out a range of sweeteners in recent years, targeting 500,000 tons of lithium carbonate production from lepidolite and other sources per year.
It has supported mining development by taking stakes in mining companies to help battery materials makers who do not have mines abroad, such as those of China’s largest lithium producers Ganfeng Lithium (002460.SZ), (002460.SZ) and Tianqi Lithium (002466.SZ) ). ).
By comparison, development in other lithium-rich regions is lagging far behind.
“There are very few battery precursor manufacturers in Qinghai, and brine lake production in the plateau regions of Qinghai and Tibet can be very limited during extremely cold winter weather,” said Arena Yang, a Shanghai-based battery metals analyst at CRU.
However, Yichun faces a major cost disadvantage. Separating lithium from lepidolite could cost as much as 100,000 yuan per ton, compared to 40,000-50,000 yuan for brine and 50,000-60,000 yuan for spodumene, analysts said.
The cost differential was manageable until lithium prices plummeted after Beijing cut EV subsidies this year.
“The increased cost is a concern, especially if lithium prices continue to trend downward,” said Yang, the Guosen analyst.
He sees the price of lithium fall to 100,000 yuan next year from 320,000 yuan now due to a looming global surplus.
‘NATURAL RESOURCES CHAOS’
With the outlook for lepidolite further deteriorating, environmental damage is a growing concern.
Along the road to the Baishi mine, red banners beg: “Unite to tackle the chaos of natural resources”.
The extraction and smelting of lepidolite produces toxic by-products such as thallium and tantalum that cause serious water pollution, said Wu Wei, an assistant professor at Xiamen University.
Yichun authorities have already found toxic substances in the Jin River, according to media reports.
Eric Norris, president of energy storage at the world’s top lithium miner Albemarle Corp (ALB.N), said miners in the US should never be allowed to do the kind of processing seen in China for lepidolite.
“It comes at a huge environmental cost,” Norris told Reuters in an interview.
In December, Yongxing Special Materials Technology (002756.SZ) said production at a subsidiary plant in Yichun had been suspended for 10 days while authorities investigated abnormal water quality in the Jin River.
Around the same time, Chinese media outlet The Paper said the Yongxing plant was one of four Yichun plants to halt production after high levels of thallium were found in water samples from the river, a major source of water supply in the area.
Reuters has not independently confirmed the pollution incidents. Yongxing did not respond to email inquiries. The news department of the Yichun government did not answer several calls. The Jiangxi Province News Department did not respond to a request for comment.
If Yichun met its goal of 500,000 tons of lithium carbonate per year by 2025, it would produce about 10 million tons of waste, said Lv Jun, director of Yichun’s New Energy Lithium Battery Industry Development Center.
That would be more than ten times the current tailings processing capacity in Yichun, said Ma Jun, director of the Institute of Public & Environmental Affairs (IPE), a Beijing-based nonprofit, citing public information.
“In the past, local environmental supervision was not strict. Now that it is becoming stricter, the lithium resources in Yichun will lose their competitiveness due to the higher cost of environmental protection,” said Ma.
For now, many companies are moving forward as they seek better control over costs, said Vicky Zhao, senior analyst at Fastmarkets.
But questions remain about Yichun’s ambitions.
UBS analysts see China’s supply of lithium from lepidolite triple to 280,000 tons, or 13% of the global supply, between 2022 and 2025, well below Yichun’s target.
“Unless lepidolite producers find a way to solve the environmental and cost problems through technology innovation and industry upgrades, it will remain a second choice to spodumene,” said Li Qi, an analyst with UK consultancy Benchmark Mineral Intelligence.
($1 = 7.1418 Chinese Yuan Renminbi)
Reporting by Siyi Liu and Dominique Patton; Additional reporting by Beijing Newsroom and Ernest Scheyder in Houston; Edited by Tony Munroe and Sonali Paul
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