Australia faces a "diesel shortage," does domestic lithium supply change?

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Source: Futures Daily

Recently, Australian iron ore company Fenix Resources Ltd. announced that the conflict in the Middle East has led to tightening regional diesel supplies, which has begun to impact the production operations of mining companies, including itself. Due to the dual effects of tropical cyclone “Narelle” and insufficient supply from diesel providers, the company expects fuel supply interruptions. As a result, the company is taking measures to reduce non-essential production activities in mining and transportation.

Affected by this news, as of last Friday’s close, the A-share lithium mining sector surged, with leading companies like Tianqi Lithium, Ganfeng Lithium, and Rongjie Co., Ltd. all hitting the daily limit; the main lithium carbonate futures contract LC2605 settled at 168,440 yuan/ton, up 6.12%.

“The current core logic of the lithium carbonate market lies in supply disturbances dominating price expectations,” explained Yu Shuo, an analyst at Chuangyuan Futures. He stated that Australia’s mining industry’s high dependence on diesel, combined with its extremely fragile fuel supply system, is exposing the lifeline of global lithium supply to the risks of geopolitical conflict. Currently, Australian mines are facing load reduction risks due to diesel shortages, leading to market concerns over future ore supply.

According to official data from the Australian Department of Energy, as of March 2026, Australia’s overall diesel inventory can only be maintained for 15 to 30 days, making it one of the countries with the lowest inventory levels among International Energy Agency member countries, with some remote mining areas having even fewer available days of inventory. Data from the Australian Bureau of Statistics shows that the mining industry is the largest consumer of diesel in Australia, with diesel consumption in the mining industry accounting for 35% of the national total in the 2023/2024 fiscal year. The entire process of mining, ore dressing, and ore transportation heavily relies on diesel, and there are no feasible alternatives in the short term.

All of this has the most direct impact on lithium supply. Data shows that in 2025, Australia’s lithium carbonate production is expected to be about 474,000 tons LCE (lithium carbonate equivalent), accounting for 31% of global supply; the expected production share for 2026 remains stable at around 30%, making it the second largest lithium supplier globally. Yu Shuo explained that this also means that currently, about 30% of the global lithium supply is facing production reduction risks due to diesel shortages.

In addition, the situation regarding Zimbabwe’s indefinite suspension of lithium concentrate exports continues to escalate. Zhang Weixin, an analyst at CITIC Construction Investment Futures, stated that since Zimbabwe announced an immediate ban on lithium concentrate exports, although Chinese enterprises have been working to resume exports, the issue has not yet been resolved, and domestic smelters can produce for about two months based on inventory; stopping shipments since March may lead to a decline in the amount of ore arriving in domestic ports in May, and if the suspension lasts too long, it will have a significant impact on supply after May.

Overall, Yu Shuo noted that the current core driving force for rising lithium carbonate prices is the expectation of a potentially substantial reduction in overseas lithium resource supply. Future attention should focus on the progress of Zimbabwe’s lithium concentrate exports and the correlation between lithium ore and lithium salt prices. In April, the domestic lithium market is expected to show a pattern of “accumulation of lithium salts, depletion of lithium ores.” Data shows that as of the week of March 27, the weekly production of lithium carbonate was 24,814 tons, an increase of 628 tons from the previous week; the weekly inventory was 99,489 tons, with a cumulative increase of 616 tons, showing a small accumulation. “Although short-term fundamentals are not particularly contradictory, the expectations of supply tightening are strong, thus driving prices up,” Yu Shuo said.

Analysts believe that from the demand side, clear signs of recovery have already emerged in the domestic downstream lithium battery demand. Industry data shows that in March, the total production of lithium batteries in the domestic market was about 219 GWh, a month-on-month increase of 16.5%, with the proportion of energy storage cell production rising to 40.6%, showing a significant increase from the beginning of the year. Meanwhile, the capacity utilization rate of domestic lithium salt factories has steadily increased from 48.1% at the beginning of the year to about 55%, with downstream positive electrode material factories gradually releasing their replenishment demand.

Looking ahead, Lin Jiani, an analyst at GF Futures, stated that the current macro narrative significantly impacts lithium carbonate prices, and potential contradictions on the supply side may continue to amplify in the second quarter. The expectation of a raw material gap is raising concerns about tightening supply-demand balance, while demand expectations remain optimistic, with energy storage being more certain. It is expected that lithium carbonate prices will show a trend of oscillating upward. In light of the ongoing conflict in the Middle East, close attention still needs to be paid to the realization of supply disturbances caused by macro variables and shifts in demand logic.

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Editor: Zhao Siyuan