UBS Equities-China Lithium _More disruption More upside_ Han-117455513

ab26 August 2025Global ResearchChina LithiumMore disruption? More upside?We upgrade China lithium names amid supply disruption We lift our China lithium carbonate average spot price assumptions by 3%/33%/20% for 2025E-2027E, raise our earnings forecasts for China lithium equities by 5%-250% for 2025E - 2027E and upgrade China lithium names (Note). These upgrades are mainly attributable to further supply disruption in China amid the mining rights investigation. What to watch in China lithium market? After CATL suspended mining work at its Jianxiawo lepidolite mine in Yichun on Aug 10th, China's spot price for lithium carbonate increased 18% to Rmb85k/t as of 21 Aug, and the downstream battery and cathode producers accelerated their restocking of lithium chemicals due to the supply disruption ahead of the peak season. In our report published on 23 July, we highlighted a total of 240kt LCE of China lithium supply (~15% of 2025E global lithium supply) as being at risk as it is not 100% compliant in lithium mining activities. This includes 1) Zangge Mining's lithium operation in Qinghai (~1% of global lithium supply), suspended on 14 July; 2) CATL's lepidolite mine in Yichun (~5% of global supply), suspended on 10 August; 3) the other seven lepidolite mines in Yichun (~6% of global supply), which are still operating but at risk once verified as lithium mines in the new reserves statement, due on September 30th; 4) Citic Guoan's lithium brine operations in Qinghai (~3% of global supply), which are still operating but also at risk due to overproduction plus the mining license expired in Feb 2025. We expect further supply cuts in our base case scenario In our base case scenario, we expect a relatively strict execution of the mining rights investigation by the government and hence expect 1) the suspension of Zangge's lithium operation to be ~1-2 months and 2) CATL's lepidolite mine to be suspended for ~12 months. And we expect 3) the other seven lepidolite mines to be disrupted after 30 September; and 4) Citic Guoan to have lithium production within the license quota (i.e. 25kt LCE) in 2025E/2026E. However, we also expect high-cost supply can substitute for the above supply disruption: 1) petalite supply from Sinomine and Huayou Cobalt in Zimbabwe suspended before can contribute ~1-3% of global lithium supply; and 2) lithium projects of Zijin Mining can accelerate and contribute ~2-3% of global lithium supply. We cut 2025E/2026E global lithium supply by 1%/5% and the supply surplus will account for 8%/1% of 2025E/2026E global lithium demand. In this case, we expect the China lithium carbonate price to go to Rmb100k/t in 2026E and hence expect 10-250% upside to 2026E EPS for our lithium coverage compared to our previous forecasts. Due to the uncertainty, we run a scenario analysisAs there is uncertainty around potential supply disruptions, we also run bear and bull case scenarios. In our downside case scenario, we expect an instruction to exe