【SMM Analysis】Lithium Price Volatility Investigation: Mining License Crisis vs. Industry Supply-Demand Fundamentals

Mining License Controversy Triggers Lithium Carbonate Futures Volatility: Sentiment-Driven Rally vs. Fundamental Constraints

On July 24-25, lithium carbonate futures witnessed consecutive limit-up moves, a rare occurrence, with the main contract price breaking through 80,000 yuan/ton to set a new high since the beginning of the year. Meanwhile, SMM's battery-grade lithium carbonate spot price rose by 2,350 yuan on July 25 to reach an average of 72,900 yuan/ton. However, this contrasts sharply with the tepid spot market transactions between producers and downstream cathode material manufacturers' limited acceptance of high prices. Is this abrupt surge signaling genuine supply contraction or merely short-term speculative fervor?

Policy Disruptions Fuel Market Sentiment

The immediate catalyst for the futures rally stems from supply concerns over mining license compliance issues in Jiangxi. Market sources indicate eight lithium mines in Jiangxi face rectification orders for environmental and licensing violations, with one major mine's license set to expire in early August under uncertain renewal prospects. Should renewal fail, this could force a temporary suspension, potentially cutting monthly supply by 10,000 LCE (lithium carbonate equivalent).

Conflicting reports swirl around the mine's status: some suggest licensing hurdles have already halted operations at both the mine and its attached lithium processing facility this week, while others attribute the pause to routine maintenance. Verification remains pending.

Simultaneously, a leading Qinghai salt lake producer faces inspections over alleged license expiration and overproduction, threatening 4,000 tons/month of supply. Market rumors diverge—some claim impending indefinite suspension with long-term contract defaults, while others insist production continues uninterrupted.

SMM notes historical irregularities in Jiangxi's licensing practices. During the 2021-2022 lithium price surge, miners registered deposits as "lithium-bearing porcelain clay" rather than lithium ore to expedite approvals, bypassing stricter lithium-specific permitting. These legacy issues now heighten supply disruption risks.

Though neither company has confirmed suspensions, market anxiety over tightening regulations has intensified. Combined with stricter industry oversight under China's "anti-internal competition" policy, speculative capital has amplified futures volatility.

High Prices Meet Weak Demand: Spot Market Lags, Inventories Loom

Despite the futures surge, spot market activity remains subdued. SMM's transaction sentiment index for lithium carbonate dropped from 2.23 on July 24 to 2.16 on July 25 (0-5 scale, lower = weaker willingness), reflecting cathode makers' resistance to prices near 80,000 yuan/ton and anemic demand.

With domestic inventories still elevated at 143,000 tons, failure of licensing risks to materialize could trigger sharp price corrections.

August Supply-Demand Outlook: Three Scenarios

Per SMM's latest industry survey, August's projected lithium carbonate supply stands at 99,600 tons (82,000 tons domestic + 17,000 tons net imports), up 1% MoM, against demand of 96,500 tons—a 3,000-ton surplus. However, supply uncertainties prompt three scenarios:

1. Limited Impact: Mines secure timely license renewals; salt lake producers suspend select lines only. Monthly reduction: 2,000-2,500 tons, marginal effect on balances.

2. Moderate Impact: Mines suspend for 2-3 months from August; salt lake ops halt completely from September. August supply could drop 8,000-10,000 tons, significantly tightening the market. Partial mine restarts by year-end may reduce losses to ~5,000 tons/month.

3. Severe Impact: Full mine suspensions from August and salt lake stoppages from September, both indefinite. August output may fall by 10,000 tons, with monthly losses reaching 14,000 tons thereafter—potentially driving aggressive destocking. Downstream restocking could then push prices higher.

Bull-Bear Standoff: Suspension Outcomes as Key Decider

Market consensus fractures around:

1. Will Jiangxi/Qinghai suspensions materialize? If yes, monthly supply could drop 10,000-15,000 tons, accelerating inventory drawdowns; otherwise, current gains may reverse.

2. Can hedging and output rises offset gaps? Refiners have locked in profits at highs. Operating rates rebounded from 45.75% in late May to 54.74% as of July 24, potentially cushioning supply shocks.

3. Policy enforcement strictness? The Ministry of Natural Resources' licensing decisions will dictate actual impacts.

Outlook: Sentiment Reversal Risks Loom

Short-term price movements, increasingly detached from fundamentals, heighten volatility risks. Key milestones include:

• Early August: Jiangxi license renewal outcomes

• Qinghai rectification progress

Should suspensions prove less severe than feared, prices may retreat . While the "anti-internal competition" policy may rationalize the sector long-term by culling excess capacity, near-term price ceilings remain constrained by idled capacity restarts and global lithium oversupply.

(Note: Production halt rumors remain unconfirmed by official announcements. Actual impacts subject to company disclosures.)