(Bloomberg) -- China’s top producer of lithium, a metal used in electric-vehicle batteries, said it’s agreed a deal with Tesla Inc. to supply a fifth of its production to the vehicle maker, highlighting the push for supply pacts.

Tesla will designate its battery suppliers to buy lithium-hydroxide products from Ganfeng Lithium Co. and its unit, the Jiangxi-based company said in a filing to the Shenzhen exchange on Friday. The agreement runs from 2018 to 2020 and could be extended by three years, Ganfeng said. Its shares jumped.

Electric-vehicle producers including Elon Musk’s Tesla are pushing to secure supplies of lithium for batteries as investors and mining companies gauge the potential for growth in the industry. Still, the burgeoning market has been roiled in 2018 by price declines, and forecasts from some banks that a wave of new mining projects will outpace demand growth.

Announcements from Ganfeng on plans for its relationship with Tesla, as well as battery producer LG Chem Ltd., help signal the quality of its products to potential investors ahead of a planned initial public offering in Hong Kong, Nomura Holdings Inc. analyst Jamie Wang said in an email.

Earlier this week, Ganfeng announced an agreement to supply LG Chem between 2019-2025 under a supplementary contract, according to a separate filing. Its lithium compounds capacity may rise to 75,000 tons of carbonate equivalent at the end of this year, making the producer the industry’s second-largest, according to CRU Group research cited in its IPO prospectus.

Along with Wednesday’s deal, Ganfeng has now locked in the sector’s two biggest supply pacts, Simon Moores, managing director of London-based industry consultant Benchmark Mineral Intelligence, said by phone. “These deals are dwarfing the size of the entire lithium hydroxide market from only a couple of years ago,” Moores said from a Sydney forum.

Tesla may need as much as 28,000 tons of lithium hydroxide a year from late next year based on battery output at its Nevada facility reaching the equivalent of 35 gigawatt hours, according to Benchmark Mineral’s forecasts. The automobiles-to-energy storage producer this year sealed a deal to add lithium supply from early next decade from Australia’s Kidman Resources Ltd.

To contact Bloomberg News staff for this story: David Stringer in Melbourne at dstringer3@bloomberg.net;Winnie Zhu in Shanghai at wzhu4@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Jake Lloyd-Smith, James Poole

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