(Yicai Global) Dec. 6 -- The lithium carbonate smelting industry of Yichun, the Chinese city known as ‘Asia’s lithium capital,’ will undergo huge change following environmental checks on a local river, according to people familiar with the matter.

“One of the production processes of some local companies is the calcination of lithium mica into lithium carbonate, which is at the center of the probe,” said a source close to Yichun's environmental protection department. “There will be major environmental rectifications in the lithium carbonate industry.”

The person added that the “color and odor of the Jin river are abnormal, which is likely to affect the safety of residents.” The river is the main water source for the residents of seven counties and cities downstream, including Gao'an city.

“As the real estate industry is in the doldrums, production lines for ceramics now burn lithium mica," according to a Yichun lithium industry insider. “While ceramics do not cause water and radioactive pollution, burning lithium mica is a different story. Previous environmental impact assessments were done based on the standards for ceramic plants rather than lithium plants.”

Yichun in southeastern Jiangxi province had 100 lithium new energy projects under construction as of June 30, with total investment of CNY121.5 billion (USD17.5 billion), according to official data. Twenty-one other lithium new energy projects worth CNY142.5 billion are in negotiations. Chinese battery giant Contemporary Amperex Technology is among the 20 listed companies waiting for their projects to kick off.

Gao'an started inspections of the upstream and downstream reaches of the Jin river, Yongxing Special Steel New Energy Technology, a unit of steelmaker Yongxing Special Materials Technology, said on Nov. 28, adding that the company would temporarily halt its lithium carbonate production line located in the upper reaches of the river.

The Shenzhen Stock Exchange, where Yongxing Special Materials is listed, issued a letter of concern  on Nov. 30, asking the firm for updates on the matter. The steel giant said on Dec. 3 it would delay response.

Yongxing Special Materials' lithium new energy business had a net profit of CNY470 million (USD67.5 million) last year and soared to CNY4 billion (USD570 million) in the first three quarters of 2022.

The lithium carbonate production lines of Anshan Heavy Duty Mining Machinery and KangLongDa Special Protection Technology in Yichun have also halted operations, though both companies said the suspension was due to road construction in the neighborhood.

Yongxing Special Materials [SHE: 002756] rose 3.9 percent today to close at CNY97.92 (USD13.99), while Anshan Heavy Duty [SHE: 002667] jumped 5 percent to CNY29.06. KangLongDa [SHE: 603665] edged up 0.3 percent to CNY36.39.

The investigation has not affected the Yichun Economic Development Zone, where Yichun's lithium industrial chain enterprises are gathered. Companies in the area, including CATL unit Yichun Contemporary Amperex Resources, Ganfeng Lithium, and Guoxuan Hi-Tech, are all operational, according to a staffer at the zone.

Editor: Futura Costaglione