UBS Equities-Lithium _Deeper China disruptions to lift prices further_ Sh...-117455505

ab26 August 2025Global ResearchLithiumDeeper China disruptions to lift prices furtherDiving deep on China disruption sees further price upgradesFollowing our lithium price upgrade post CATL Jianxiawo idling, we update again after our China team deep-dived into China lithium supply disruption potential from mining investigations. We reduce 2025/26E Chinese lithium supply (longer, broader licensing related halts), and upgrade spodumene prices by 9-32%. Lithium chemical (carbonate & hydroxide) prices are also upgraded by 4-17% across CY25-28E (fig 1). We are above consensus on spodumene near term, in line on chemical and below cons on both long term. Next catalysts: 1) news flow on Chinese supply disruption, 2) trade flow to gauge strength of inventory restocking ahead of peak demand season, and 3) lithium price trends in response to aforementioned factors.China supply disruption deep-dive: Risk builds of broader, deeper outagesChina Li2CO3 spot prices lifted ~18% (to 21st August) following CATL's idling of its Jianxiawo mine, along with increased restocking by cathode & battery producers. We see up to 240kt LCE of China lithium supply (~15% of global supply) as risky on potential compliance issues. This includes: 1) Zangge Mining (~1% of supply), suspended on 14 July; 2) CATL (~5% of supply), suspended on 10th August; 3) seven other lepidolite mines in Yichun (~6% of global lithium supply), which are at risk post new reserves statement due September 30; 4) Citic Guoan's brine operation in Qinghai (~3% of supply), due to overproduction plus mining license expired in Feb 2025.Lower supply in base case, & up/down side based on investigation strictnessFollowing a deep-dive into Chinese supply, we now expect a relatively strict execution of mining rights investigation by the government. This results in: 1) Zangge idled 1~2 months, 2) CATL idled ~12 months, 3) seven other lepidolite mines to be disrupted after 30 September, and 4) Citic Guoan to trim production to within the license quota (i.e. 25kt LCE) in 2025E/2026E. Offsetting in part, we expect other high-cost supply to respond: 1) petalite supply from Sinomine and Huayou Cobalt in Zimbabwe can add 1~3% of global lithium supply; and 2) projects of Zijin Mining can contribute 2~3% of global lithium supply. We see potential for both upside and downside scenarios, driven by stricter or looser mining rights investigations, resulting in China lithium prices at Rmb 120-70k/t, respectively, vs Rmb 100k/t in the base case.Demand signals: EV & BESS demand remains robust, & inventories balancedGlobal EV sales growth was 26% y/y in June (fig 8), led by China at +31% y/y growth (fig 13 & 14) and leaving Chinese EV makers ~64% of the global market (fig 9)g 9 9. This is despite the North American EV market contraction accelerating (fig 17 & 18). Elsewhere, EV sales in Europe have been accelerating recently and are now +26% y/y in June (fig 15 & 16); similarly in Asia Pacific ex-China, sales are accelerating