Contemporary Amperex Technology Co., Limited (CATL) halts production, lithium carbonate hits the daily limit again, is there a shift in industrial policy?

Picture of a lithium mine area in Yichun.

Abstract:

On the surface, the production halt is a procedural requirement after the license expires. However, given CATL's scale and political and business connections, it's unlikely they wouldn't have renewed the license before it expired. This unexpected production halt has sparked much speculation in the market.

 

August 11th, a seemingly ordinary Monday, yet it disturbed the lithium carbonate market due to an "earthquake" from Yichun, the "Asian Lithium Capital".

 

CATL's largest lithium mine project, the Yichun Xiaxiawo mine area, officially ceased production at 12:00 AM on August 9th due to the expiration of its mining license.

 

Although CATL stated on the investor interaction platform that this matter has little impact on the company's overall operations.

 

However, the impact on the capital market is still significant. On the first trading day after the news fermented, the capital market reacted violently: the main contract of lithium carbonate futures opened and immediately reached the daily limit of 8%, capped at 81,000 yuan/ton.

 

 

 

The surge in the futures market spread to the stock market, with the lithium mining sector opening strongly, and lithium mining concept stocks such as Tianqi Lithium, Ganfeng Lithium, and Shengxin Lithium Energy all hitting the daily limit.

 

Related stocks such as Rongjie Co., Ltd., Salt Lake Co., Ltd., Yahe Group, Tibet Mining, and Tianhua New Energy also rose. Hong Kong lithium stocks also rose across the board, with Ganfeng Lithium rising by over 20% at one point and Tianqi Lithium rising by over 18% at one point.

 

 

 

 

This series of chain reactions is clearly due to the sudden shutdown of the Xiaxiawo mine area and the complex reasons behind it.

 

This event is far more than a simple production interruption. On the surface, the production halt is a procedural requirement after the license expires. However, given CATL's scale and political and business connections, it's unlikely they wouldn't have renewed the license before it expired. This unexpected production halt has sparked much speculation in the market.

 

It occurred at a delicate juncture where lithium prices have experienced more than two years of deep corrections, and the industry is struggling with "involution" and losses, and it also coincides with the newly revised "Mineral Resources Law" coming into effect just over a month ago.

 

Therefore, the shutdown of Xiaxiawo is not just the shutdown of one mine area for CATL; it touches upon the deep logic of industrial policy and foreshadows a turning point in the future cyclical trend of the entire lithium battery industry chain.

 

 

01

The Xiaxiawo mine area suddenly "goes silent"

 

August 9th, Saturday, an ordinary weekend, but for investors who closely follow the lithium mining market, it was a sleepless night. Located in Yichun, Jiangxi, the Xiaxiawo mine area, CATL's largest investment and planned capacity lithium mica mine project to date, its mining license expired on this day.

 

Although the market had previously paid close attention to this time node, the expiration of the license before was not a problem.

 

However, the market's attention is focused on this, not only because it is a key layout for CATL to secure upstream resources, but also because it is regarded as an important indicator of the supply side of the industry.

 

In order to confirm whether the production halt would occur on schedule, some investors with real money staged a "hardcore" on-site stakeout.

 

According to media reports and investor accounts, some people drove around from small roads at around 9 pm on August 9th, spending nearly two hours hiking to the top of the mountain opposite the mine area. In the sultry summer night, they set up equipment; some investors were described as "shirtless" waiting on the mountaintop, just to witness firsthand whether the Xiaxiawo mine area would stop production.

 

According to these eyewitnesses, as the clock struck midnight, the mine area, which had been roaring all night, really fell silent. The lights on the mountain gradually went out, excavators, bulldozers, and conveyors and other heavy equipment all stopped operating, the once deafening machine sounds and occasional gunfire stopped abruptly, and the entire valley was unusually quiet.

 

Meanwhile, others used technological means to obtain more accurate information. Some reports say that investors launched drones in villages near the mine area, hoping to get close to scout the mine's equipment layout and shutdown details.

 

This information was recorded by them and quickly spread within social media and investment circles, becoming the direct fuse that ignited market sentiment. Lithium carbonate futures and the lithium mining sector opened higher and went higher, becoming one of the most dazzling commodities and sectors of the day.

 

The logic behind this capital feast triggered by a mine shutdown is clear and direct: against the backdrop of long-term low lithium prices and widespread losses or meager profits across the industry, any substantial contraction in supply may become a key variable in breaking the weak supply-demand balance and catalyzing price reversal.

 

Caption: The machines in the Xiaxiawo mine area have stopped.

Source: Securities Times

 

 

02

Exploring the reasons behind the shutdown: More than just license expiration

 

On the surface, the reason for the shutdown of the Xiaxiawo mine area is simple and clear—the mining license expired on August 9, 2025, and the company needs to legally suspend mining operations and reapply for renewal procedures.

 

However, the market's huge reaction shows that investors generally believe that things are not as simple as "following procedures". Given CATL's way of doing things, why couldn't they complete the renewal before the license expired, thus achieving seamless production?

 

Behind this, there is clearly new and unusual resistance.

 

The most important, of course, is the "invisible hand" of the new "Mineral Resources Law." The newly revised "Mineral Resources Law of the People's Republic of China" officially came into effect on July 1st. This is the first comprehensive revision of the law since its promulgation in 1986, nearly forty years ago. Its legislative purpose and specific provisions reflect a fundamental change in the country's approach to mineral resource management.

 

Although the publicly available legal texts do not directly make clear and quantitative changes to the renewal procedures or tax standards for lithium mining enterprises, the principled guidance it reveals undoubtedly adds enormous uncertainty to the renewal path of Xiaxiawo.

 

First, the new law significantly strengthens the strategic positioning of national mineral resource security and explicitly lists resources such as lithium as strategic minerals requiring special protection. This means that the renewal of mining rights for such minerals will no longer be a simple material review as in the past, but will be upgraded to a comprehensive and high-standard reassessment of the enterprise's qualifications, development plan, resource utilization efficiency, and contribution to national energy security.

 

Regulatory agencies need to ensure that the future mining activities of this mine fully comply with the national highest strategic interests, which undoubtedly lengthens the approval cycle and raises the approval threshold.

 

Secondly, the new law has unprecedentedly added a special chapter on "mine ecological restoration," clarifying the lifelong responsibility system of "who mines, who restores," and emphasizing green and sustainable development. The mining of lithium mica in Yichun has always been accompanied by controversy over its environmental impact. After the new law comes into effect, renewal applications must submit more detailed, scientific, and heavily invested ecological restoration plans, and may need to pay higher ecological security deposits.

 

This not only increases the direct costs of enterprises but also requires joint review by multiple departments such as environmental protection and natural resources, whose complexity and strictness far exceed the past. CATL may be in this link, needing more time to prepare and improve plans that meet the spirit of the new law.

 

Furthermore, the new law significantly increases the penalties and reconstructs the responsibility system in the part of legal liability. This makes local governments and approval departments extremely cautious in handling similar renewal applications. Issues that might have been considered "minor flaws" under the old regulations may become "hard injuries" that lead to the rejection or delay of applications under the new law.

 

In addition, the new "Mineral Resources Law" lists lithium as an independent mineral species and raises the identification standard for associated minerals to ≥0.4% lithium oxide. However, the average lithium oxide grade of the Xiaxiawo mining area is only 0.27%, far below the new regulation threshold. This means that the mining area may need to be adjusted to a development model with ceramic clay as the main product and lithium as a secondary product, causing the resource tax to soar from the original 3.25%-6.5% to 15%.

 

According to industry analysis, the cash cost of lithium carbonate per ton has reached 87,700 yuan, while the current market price is only 73,000 yuan. Suspension of production means a loss of 15,000 yuan for each ton produced.

 

Against the backdrop of the country emphasizing the state-owned nature of resources and public interests, the regulatory authorities may take the opportunity of renewal to renegotiate the benefit distribution mechanism of resource exploitation, such as requiring enterprises to undertake more social responsibilities and pay additional resource compensation fees, to reflect the spirit of the new law.

 

Therefore, the suspension of production in the Xiaxiawo mining area is the first landmark case of the new "Mineral Resources Law" playing a regulatory role in the new era. It means that the "compliance cost" and "policy cost" of mineral development have been significantly increased, and the past "land grabbing" model has completely ended.

 

Caption: A picture of a lithium mine in Yichun operated by CATL.

Source: Reuters

 

03

New Signals of "Anti-Involution": Industrial Policy May Shift

 

In addition to changes at the legal level, this suspension of production also reflects a profound shift in national industrial policy, namely correcting the "involution" phenomenon caused by the wild growth of the lithium battery industry in the past few years.

 

In the past few years, driven by the demand for new energy vehicles, lithium resources have become the focus of capital pursuit, triggering an unprecedented investment boom. As a result, the prices of upstream lithium mines have soared and plummeted, the midstream materials and battery sectors have fallen into fierce price wars, and a large number of inefficient and environmentally substandard production capacities have emerged, seriously disrupting market order and harming the healthy development of the industry.

 

National decision-makers have clearly realized this problem. Promoting the industry's shift from "scale expansion" to "quality improvement," eliminating backward production capacity, and increasing the proportion of "effective production capacity" (i.e., technologically advanced, green and environmentally friendly, and cost-controllable production capacity) has become the core goal of current industrial policy.

 

The Ministry of Industry and Information Technology's latest early warning mechanism lists enterprises with a capacity utilization rate of less than 50% as "excess capacity." The operating rate of lithium salt plants in Yichun has fallen below 50%, and some small and medium-sized mines have been sealed due to environmental protection and cost pressures.

 

Against this background, suspending the core mining area of CATL, even if only temporarily, has a strong demonstration and deterrent effect. This move sends a clear signal to the entire industry: even industry leaders must strictly abide by new laws and regulations, and there are no "extra-legal privileges." This sets a new code of conduct for the entire industry.

 

By raising the entry threshold and compliance costs, it is possible to naturally filter out a batch of speculative production capacities with insufficient capital strength, backward technology levels, and inadequate environmental protection measures, thereby achieving the elimination of backwardness on the supply side and alleviating the pressure of "involution".

 

Therefore, this suspension of production can be interpreted as a "stress test" and the use of policy tools aimed at reshaping the industry ecosystem and guiding the industry into a new stage of healthier, more orderly, and higher-quality development.

 

 

04

Overture to a New Cycle?

 

The "storm" triggered by the suspension of Xiaxiawo will have a profound impact on industrial cycles, market structures, and corporate strategies.

 

In the short term, the suspension of the Xiaxiawo mining area has directly created a gap in market supply. The suspension of the Xiaxiawo mining area directly reduces the monthly supply of lithium carbonate in China by about 10%, or 5,000-6,000 tons of LCE. If other lithium mines in Yichun are successively suspended due to similar approval issues, the monthly supply may be further reduced by 7,000-8,000 tons, accounting for more than 20% of the national production capacity.

 

UBS analysts predict that this suspension will push the price of lithium carbonate to rebound from 70,000-80,000 yuan/ton to 90,000-100,000 yuan/ton.

 

This is the direct reason for the sharp rise in lithium carbonate futures prices.

 

But the more profound impact lies in the reshaping of long-term supply expectations. This incident has made market participants clearly aware that the future supply of lithium resources will not only depend on geological reserves and mining technology, but also a variable that is strongly constrained by policies and regulations.

 

The approval process for mineral development will become longer, more complex, and more unpredictable. This "regulatory uncertainty" will be priced by the market, forming a "compliance risk premium".

 

This may mean the beginning of a new cycle for the lithium industry. If the 2020-2023 cycle was a typical "resource is king" cycle driven by supply-demand mismatch, its core logic was "whoever has the mine can dominate the market".

 

The suspension of Xiaxiawo marks the beginning of a new cycle, which we can call the "compliance is king" cycle. The core characteristics of the new cycle will be that the increase or decrease in supply will no longer be entirely determined by market prices, but will be increasingly influenced by national strategies, environmental regulations, and the willingness of local governments to regulate.