Lithium to Get Boost After China Eyes Ban on Fuel Car Sales

China, the world’s largest car market, has signaled that it could ban the sale of all petrol and diesel cars.

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China is joining the race to boost electric car production in the next decade.

According to state news agency Xinhua, the country is looking at a ban on the sale of all petrol and diesel cars “in the near future.” The news follows similar moves from countries like France and the UK, which are looking to halt the sale of all fossil fuel cars by 2040.

“Some countries have made a timeline for when to stop the production and sales of traditional fuel cars,” Xin Guobin, vice minister of China’s Ministry of Industry and Information Technology, was quoted as saying at an auto industry event in Tianjin on Saturday (September 9).

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“The ministry has also started relevant research and will make such a timeline with relevant departments. Those measures will certainly bring profound changes for our car industry’s development,” he added. Citing “turbulent times” ahead, Xin called on the country’s carmakers to adapt to the challenge and adjust their strategies accordingly.

“The implementation of the ban for such a big market like China can be later than 2040,” said Liu Zhijia, an assistant general manager at Chery Automobile, the country’s biggest passenger car exporter. “That will leave plenty of time for everyone to prepare.” Chery unveiled a new line for upscale battery-powered and plug-in hybrid models at the Frankfurt motor show last week.

China produced and sold more than 28 million cars last year, according to the International Organization of Motor Vehicle Manufacturers. The country has been fighting air pollution and has set goals for electric and plug-in hybrid cars to make up at least a fifth of its auto sales by 2025.

In June, the government introduced a draft regulation to compel car manufacturers to produce more electric cars by 2020. Foreign automakers, such as Volvo (STO:VOLV-B) and Ford (NYSE:F), have already announced plans to boost EV production in the country in partnership with local companies.

“[The] difference between this and the raft of other internal combustion engine (ICE) bans out there [is that] I take China seriously on this. Other countries I don’t,” commented Simon Moores, managing director at Benchmark Mineral Intelligence.

China’s shift to electric cars will be another win for lithium, a key component in the batteries used to power EVs. As the electric car revolution continues to unfold at an exponential speed, Roskill estimates that 785,000 tonnes of lithium carbonate equivalent a year will be needed by 2025, amounting to a 26,000-tonne shortfall from anticipated supply.

As a result, lithium prices are expected to continue to surge in the next few months, Benchmark says. The firm predicts that lithium carbonate prices will average $13,000 a ton over the 2017-to-2020 period from around $9,000 in 2015 to 2016. Lithium hydroxide is expected to average $18,000 a ton between 2017 and 2020 against $14,000 from 2015 to 2016.

The Global X Lithium & Battery Tech ETF (ARCA:LIT) climbed 5 percent on Monday (September 11), and was poised for its highest close in more than six years. Its biggest holdings are FMC (NYSE:FMC), SQM (NYSE:SQM), Samsung SDI (KRX:006400) and Tesla (NASDAQ:TSLA), and they all saw their share prices gain as well, Bloomberg reported.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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