An army of hedge funds targeting ASX-listed lithium stocks are scrambling to cover their aggressive short positions following reports that Chinese electric vehicle battery maker CATL has suspended production at a major operation in China.

Shares of Pilbara Minerals and Liontown Resources – both in the top five most shorted stocks on the ASX – soared more than 13 per cent on Wednesday amid speculation that the mine closures will pull supply out of the market, boosting lithium prices.