China Lithium Probe Shuts Down About a Tenth of Global Supply

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China’s lithium industry is reeling as its top production hub — responsible for around a tenth of the world’s supply — faces sweeping closures amid a government probe of environmental infringements.

Some lithium operations in Yichun, Jiangxi province, have been halted after Beijing officials arrived over the past week to investigate alleged violations at lithium mines, Yicai newspaper reported Sunday, citing unnamed local government staff.

The lithium industry has boomed in Yichun over the past year as prices for the battery material rocketed, and some companies had already been targeted for infringements including incidents of pollution. This broader crackdown involves officials from central government departments including the Ministry of Natural Resources.

Analysts said the crackdown would lead to significant mine stoppages.

It’s uncertain how long those would last for, but a month-long closure would reduce output by an amount equivalent to around 13% of the world’s total, analysts including Bai Junfei at Citic Securities Co. wrote in a note on Monday. Rystad Energy, a consultancy, put this at 8%.

Global lithium prices soared to a record-high last year as demand from the fast-growing battery industry for electric vehicles outstripped production. Yichun and Jiangxi province more broadly were set to become a key source of extra supply from lepidolite, a lithium-bearing rock.

The Beijing officials will mainly look at violations at lithium mines and seek to guide the “healthy development” of the industry, according to the Yicai report. It will largely target those mining without permits or with expired licenses, it said.

According to Goldman Sachs Group Inc., the Chinese car industry’s demand for lithium has fallen by more than half in recent months, a dramatic reversal that will drive a further slump in the market. Prices in China have dropped more than 30% from last year’s peak.

–With assistance from Alfred Cang.