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Investing.com - The worst of the lithium downcycle has passed, according to UBS, and thus the Swiss bank has upgraded its medium-term price outlook.
Chinese supply concerns have emerged recently related to mining licence irregularities and production above approved capacity, as part of China’s anti-involution crackdown, analysts at UBS said, in a note dated August 11.
Over the weekend, CATL, a Chinese battery manufacturer, halted mining at its Jianxiawo lepidolite mine in Yichun after its mining licence expired on 9 August, and indicated an "at least 3 months" closure.
Licence scrutiny continues in China and presents supply disruption risk, the bank added.
“With Jianxiawo halted, and selected ex-China supply updated post quarterlies, we lift our lithium price outlook,” UBS said. “Spodumene prices are revised 16-27% higher, and lithium chemical (carbonate & hydroxide) 5-14% higher across CY25-28E.”
The CATL halt shines a light on potential licensing renewal impacts, the bank added, highlighting that, in order to comply, 1) lithium miners need to be licensed to produce lithium, and production volume should be within the licensed capacity; 2) the mining licence needs to be issued by central government; and 3) the miners need to pay lithium production royalties.
In reality, some miners are not in compliance. The CATL halt for at least three months highlights the potential supply disruption and underpins reduced supply growth forecasts in our supply-demand model.