In this edition of Critical Thinking, Ellen Lenny-Pessagno and Peter Hütte analyze what the closure of the CATL mine in Jiangxi province, a major producer of lithium, reveals about China’s continued global dominance during this highly volatile period for the industry.

The August 11 closure of CATL’s Jianxiawo lithium mine in China—part of a broader regulatory push to address industrial overcapacity—triggered a swift reaction in global markets. Lithium carbonate spot prices rose 37 percent, from June lows of US$8,400 to US$11,532 by August 15. While this underscores market sensitivity to Chinese policy, it also highlights the persistent structural challenges facing global lithium supply chains. The underlying reality has not changed: at current price levels, Western lithium investments remain economically unviable, reinforcing Chinese dominance in the supply chain.

A Market Sensitive to Domestic Shifts in China

The Jianxiawo facility, while accounting for just 3 to 6 percent of global lithium supply, proved large enough to move prices—a reflection of both tight market conditions and the central role of Chinese production. The timing of the closure, aligned with China’s campaign against industrial overcapacity, suggests deliberate market management rather than purely regulatory compliance. Market participants interpreted the move as an attempt to restore pricing control following several quarters of declines.

China’s influence stems not only from mining production volume but also from its dominance in processing and midstream conversion, where it holds more than 65 percent of global capacity. In this context, even relatively small supply disruptions can shape expectations globally.

Western Projects Still Face Steep Hurdles

Although lithium prices have rebounded, they remain well below the US$20,000–30,000 per ton range typically needed to justify Western production investments. Higher capital costs, lengthy permitting processes, stricter environmental compliance, and elevated labor expenses all contribute to a structural price disadvantage—especially when compared to Chinese operations, which also benefit from government-subsidized infrastructure. As important, China can engineer and manufacture lithium conversion facilities at scale, giving the plants built there a significant advantage.

Despite growing optimism about lithium demand fundamentals, projected price trajectories continue to favor Chinese market control. Goldman Sachs forecasts lithium carbonate prices will rise to between US$13,000 and US$17,000 per ton in the next three years, supported by global EV sales—particularly in China—and the expansion of Battery Energy Storage Systems worldwide. Yet even these bullish projections remain below the threshold needed for new greenfield mining and conversion projects to become viable in the US, Europe, or Australia without significant state support or technological breakthroughs.

The projected price recovery represents an ideal scenario for Chinese producers—providing substantial revenue increases while maintaining cost barriers against Western competition. This “control premium” allows China to keep global prices within a band that supports Chinese profitability while deterring meaningful Western competition.

Implications for Policymakers and Investors

For Western mining companies, lithium processors and investors, the current market environment presents a strategic dilemma. While geopolitical pressure and government incentives create political momentum for domestic production, the economic fundamentals remain prohibitive. Chinese authorities retain the capability to rapidly increase supply and crater prices once Western competitors commit capital—as happened over the past three years.

Current US policy initiatives, including critical minerals tariffs, the 45x tax credit (set to phase out after 2033), and the nearly $1 billion of DEO funding announced on August 13 to advance critical minerals mining, processing, and manufacturing represent tactical responses to a strategic challenge but may not bridge the underlying cost competitiveness gap.

Conclusion

The CATL mine closure should be interpreted not as evidence of market rebalancing but as confirmation of China’s continued control of global lithium markets through regulatory mechanisms. Absent sustained price increases or major advances in extraction or processing technologies, Western producers may continue to face challenges entering the market at scale.

The reality is that China continues to hold the cards in global lithium markets. Recent price increases represent tactical adjustments rather than fundamental shifts in competitive dynamics. Beijing has demonstrated that it can provide just enough price support to maintain market stability while keeping levels below those necessary to encourage meaningful Western competition. Until market conditions fundamentally change, the lithium market will remain a case study in Chinese economic leverage and Western strategic vulnerability.