(Reuters) -Shares of lithium producers surged on Monday after Chinese battery giant Contemporary Amperex Technology (CATL) halting output at a major mine raised hopes it would erode the oversupply in a market grappling with soft demand.

During morning trade, Albemarle Corp jumped 10.2%, while Chile's Sociedad Quimica y Minera, rose 9.2% and Lithium Americas, gained 2.4%.

Smaller companies, Standard Lithium, Piedmont Lithium and Sigma Lithium, advanced between 6.2% and 19.6%. Chinese and Australian miners also rallied.

The lithium sector has been struggling with a glut following weaker-than-anticipated growth in demand for electric vehicles.

The most active lithium carbonate futures in Guangzhou rose the 8% daily limit after CATL said its mining license for the Yichun project in Jiangxi province expired on Aug. 9 and renewal was underway.

The site can produce more than 46,000 metric tons of lithium carbonate equivalent a year, roughly 3% of the global supply forecast for 2025, according to data from the Australian government.

Morgan Stanley analysts said the outage could erode the small 60,000-tonne surplus it expects for 2025, bringing "upside risk to lithium prices in the short term" and potentially moving the market closer to balance if other disruptions follow.

Longer-term, they expect a surplus to re-emerge without further supply discipline.

Morningstar analyst Vincent Sun said the suspension was "an indication that the industry is taking proactive steps to contain further lithium price falls observed year-to-date."

With lithium prices now below the marginal cost of production, the move could be perceived as a positive driver to limit supply growth and rebalance the market, he said, but added it was "still too early to confirm a price recovery trend for the rest of the year."