By Sergio Goncalves

LISBON (Reuters) – Chinese lithium producers are flooding the global market with critical metal, causing a "predatory" price drop to eliminate competition, a senior U.S. official stated during a visit to Portugal, which has ample lithium reserves.

Jose Fernandez, undersecretary for economic growth, energy, and the environment at the U.S. Department of State, explained during a briefing on Monday that China is producing far more lithium than necessary.

> "That is an intentional response by the People's Republic of China to what we are trying to do" with the Inflation Reduction Act, the largest climate and energy investment package in U.S. history, valued at over $400 billion, he said, adding:
>
> "They engage in predatory pricing… (they) lower the price until competition disappears. That is what is happening."

China accounts for about two-thirds of the world's lithium chemical output, primarily used in battery technologies for electric vehicles. Lithium prices have dropped over 80% in the past year, driven largely by overproduction from China and reduced demand for electric vehicles.

However, the price collapse is also impacting China, forcing companies like battery giant CATL to suspend production at certain mines.

JOB CUTS

Europe seeks to lessen its dependency on lithium imports from China and other countries essential for the green transition.

Fernandez noted that low prices "constrain our ability to diversify our supply chains on a broad, global scale" and negatively affect countries like Portugal that require investment to develop these industries.

Falling prices have led many global lithium producers to reduce production and cut jobs.

Portugal, with around 60,000 tons of known reserves, is already Europe’s largest lithium producer, traditionally mined for ceramics. Alongside Spain, it aims to capitalize on local lithium deposits by covering the entire value chain from mining and refining to cell and battery manufacturing to battery recycling.

Several mining companies in Portugal are seeking financing, customers, and suppliers to ramp up projects.

> "We want to help them, and we think we can… lithium mining companies everywhere have to survive this difficult phase created by predatory pricing," Fernandez said.

China's Premier Li Qiang countered accusations from the United States and EU in June at a World Economic Forum meeting, denying that Chinese firms benefit from unfair subsidies and are poised to flood markets with cheap green technologies.

Trade tensions escalated when the European Union decided to implement significant tariffs on China-made electric vehicles, claiming unfair subsidies after a year-long anti-subsidy investigation. China then instituted temporary anti-dumping measures on brandy imports from the EU.