S&P/ASX 200 Index (ASX: XJO) lithium shares will be watching how a surprising new move by Chinese authorities plays out.
The ASX 200 lithium stocks have been buoyed by soaring demand for lithium, a critical element in most EV batteries.
Although lithium prices have tumbled some 30% since hitting record highs last year, as short-term supply catches up to demand, the big miners are still handily outperforming the benchmark.
Here's how their share prices have moved over the last 12 months:
- Pilbara Minerals Ltd (ASX: PLS) shares are up 54%
- Core Lithium Ltd (ASX: CXO) shares are up 20%
- Allkem Ltd (ASX: AKE) shares are up 25%
- IGO Ltd (ASX: IGO) shares are up 19%
- Mineral Resources Ltd (ASX: MIN) shares are up 82%
So, why are these ASX 200 lithium shares watching China?
ASX 200 lithium shares eyeing 10% cut in global lithium supply
China is not only the world's top producer of EVs, but it also produces some 75% of the world's lithium-ion batteries. And according to the International Energy Agency, the Middle Kingdom accounts for around 60% of global lithium supplies.
And it's this supply-side factor that will be drawing the interest of ASX 200 lithium shares.
This comes as news breaks that environmental officials are investigating lithium miners in Yichun, Jiangxi province for breaching regulations.
Yichun produces approximately 10% of the annual global lithium supply.
As Bloomberg reports, ore-processing operations in Yichun have been brought to a halt as the investigation takes place. It's not yet known how long the closure orders will remain in place.
The refineries are still running.
What are the experts saying?
Commenting on the environmental crackdown that's being followed by ASX 200 lithium shares and miners around the world, Susan Zou, an analyst at Rystad Energy said, "This supervision may mean that the inspection and control over lepidolite mining in China will be more stringent in the future."
Lepidolite is a lithium-bearing mineral. And analysts had expected Jiangxi province would provide significant new supplies.
The big question now, and one which could well impact the price of lithium and hence ASX 200 lithium shares, is how long the shutdowns will last.
China's annual parliamentary meetings take place in March.
"At present, the market speculation is that the probe may stop after the two sessions in China next month," Zou said.
Chris Berry, president of industry consultancy House Mountain Partners, added (quoted by Bloomberg):
Any mine would typically have a stockpile of ore in place, so as long as the refineries are operating, you aren't likely to see any whipsaw in lithium pricing. Should these mines be halted for months, then this becomes a different story.
Certainly, a story worth following.
