Lithium Prices Surge as China Mine Suspension Fuels Supply Concerns; Global Markets Mixed
Santiago, Chile – August 14, 2023 – Lithium futures experienced a significant rebound today, spurred by the suspension of operations at a major lepidolite mine in China and growing speculation of further production cuts as part of a government plan to address oversupply in the industry. Simultaneously, global stock markets presented a mixed picture, with Wall Street edging lower ahead of key US inflation data.
According to Aldo Morales, Deputy Manager of Variable Income Studies at BICE INVERSIONES, the market had not fully accounted for the impact of Chinese government restrictions on lithium supply. “The biggest restrictions on the offer in China…were not something that was internalized in the market. We have seen an critically important rebound in lithium futures and, as it responds to a plan, it could continue to extend,” Morales stated.
The catalyst for the price jump was the halt in operations at the Jianxiawo mine, operated by battery giant CATL, following the expiration of its operating permit on August 9th. Analysts are debating weather the suspension was a deliberate move by the Chinese government, by CATL itself, or a coordinated effort. A Scotiabank team led by Managing Director of Variable Income Studies, Ben Isaacson, noted this uncertainty in a communication to clients, while predicting a rise in lithium stocks. Lithium futures indeed jumped 8% following the proclamation.
sean Gilmartin, Senior of Bloomberg Intelligence, believes the price sensitivity to Chinese production cuts signals a market bottom. He estimates the Jianxiawo mine’s suspension, representing 3-5% of global production, could last up to three months. “The highest upward sensitivity of lithium prices in response to the reduction of Chinese production is one more proof that the market has touched the bottom, and that it is likely that in 2026 and 2027 more constructive foundations arise.”
Chilean Market Gains
The IPSA, Chile’s benchmark stock index, saw gains today, led by Mallplaza (3.2%), Arauco Park (2.4%), and Itaú (2.1%).Shares of Sociedad Química y Minera de Chile (SQM) also performed well, as did Falabella (1.5%),ahead of the company’s second-quarter earnings release tomorrow. [See SQM stock performance here: https://diariofinanciero.shinyapps.io/accion_sqmb/ ]
Global Market Overview
US markets closed lower, with the Dow Jones falling 0.5%, the S&P 500 decreasing 0.3%, and the Nasdaq retreating 0.3%. This follows a period of strong performance for the S&P 500, which recently approached historical highs. Investors are now focused on the release of US consumer price index (CPI) data for July tomorrow.
Richard Hunter, Head of Markets at Interactive Investor, noted a cooling off after a strong earnings season, with companies expressing caution regarding future prospects due to potential inflationary pressures.
European markets were also mixed. The Stoxx 50 Euro retreated 0.3%, while London’s FTSE 100 advanced 0.4% after a week of underperformance compared to other European indices. Asian markets showed modest gains, with the CSI 300 of continental China rising 0.4% and the Hong Kong Hang Seng winning 0.2%. Tokyo’s stock exchange was closed for the Mountain Day holiday.
Trade Truce Extended
In further news, the 90-day tariff truce between China and the US has been extended, a move largely anticipated by the market.
China’s latest inflation data, released Friday, continued to indicate economic weakness, with the Consumer Price Index (CPI) remaining flat year-on-year, while producer prices fell by 3.6% over the past 12 months.
