The CME lithium hydroxide contract has jumped by 86 percent since the start of the year and is trading back above US$20,000 per tonne for the first time since late 2023.

Lithium has a history of boom-and-bust pricing ever since it transitioned from being used in industrial lubricants to powering electric vehicles.

This time around, however, the boom may be less spectacular.

Underlying demand growth remains strong but disappointing global EV sales in the first quarter have tempered expectations for this year.

Supply, on the other hand, should rise as higher prices lead to the reactivation of projects that were halted during the bust years.

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Much, though, depends on one particular Chinese mine.

The catalyst for lithium's price recovery came in August, when Chinese battery giant Contemporary Amperex Technology (CATL) announced that it had suspended operations at its Jianxiawo mine in Jiangxi province after its mining license expired.

The news triggered a wave of speculative buying on the Guangzhou Futures Exchange.

At the height of the lithium fever in November, Guangzhou traded 27.0 million futures contracts and another 12.5 million option contracts, each representing one tonne of lithium carbonate.

The global lithium market is growing fast but is still less than 2 million tonnes in size.

It took several hikes in trading fees and margins and the imposition of position limits before the exchange tamed animal spirits.

What's noticeable, though, is that while trading volumes have dropped sharply so far this year, the price has remained elevated.

That says much about how important a part Jianxiawo plays in China's lithium supply dynamics.

Jianxiawo has an annual nameplate capacity of 150,000 tonnes of lithium carbonate equivalent, making it one of the largest single lithium assets globally, according to consultancy Benchmark Mineral Intelligence (BMI).

CATL originally expected its license to be renewed within three months. It is still waiting.

The loss of output has served to accelerate a long-running drawdown in inventory along the Chinese processing chain.

Lower stock cover has left lithium pricing more sensitive to any sign of further supply disruption such as Zimbabwe's unexpected raw materials export ban in February, subsequently replaced with a new quota regime.

The mine's closure has also raised questions about other operators clustered around the lithium hub of Yichun amid signs local regulators are taking a hard look at the mining sector.

Jianxiawo is widely expected to return to action in the coming months. China isn't blessed with huge in-the-ground lithium resources and the mine is too important to domestic supply resilience to close permanently.

But, to quote BMI, "The timing of resumption is the single largest swing factor in the price outlook over the next 24 months."

BMI thinks lithium is already overpriced and forecasts a "material decline" in the second half of the year as the shift to higher pricing incentivizes the restart of capacity that was idled during the price slump.

BNP Paribas agrees, arguing that prices "have derailed from fundamentals" thanks to over-exuberance in both futures pricing and supply-chain order flow.

The bank is forecasting continued supply surplus both this and next year, noting that surging battery demand for stationary storage is only partly mitigating slower growth in the larger EV market.

Even bulls such as Citi are cautious on timing. The bank's upside CME hydroxide target of $32,000 per tonne comes with a three-month sell-by date and it expects lower prices next year, again because of the anticipated strong supply response.

The broad consensus seems to be that any lithium boom will be short-lived and a shadow of previous price spikes.

But everything still depends on how long it takes the Bureau of Natural Resources of Yichun in Jiangxi province to grant CATL its new mining license.

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The writer is a columnist for Reuters. The views expressed are personal.

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