China's LFP industry chain showed strengthening momentum recently, driven by recovering downstream demand and improving earnings expectations, with operating rates across the sector rising steadily.
From an end-use perspective, LFP batteries continued to account for over 80% of total production in both power and energy storage applications, reaffirming their market dominance. Going forward, market focus will remain on downstream battery makers' procurement tenders and the further realization of end-market demand.
The iron phosphate market has been particularly firm, with prices testing higher at Yuan 11,600-12,800/tonne. Costs continued to rise, driven by fluctuations in raw materials such as sulfur. Downstream demand stayed robust, with major producers operating near full capacity. Market participants are awaiting procurement tenders from leading battery makers to gauge future processing fees, leading to cautious sentiment.
Lithium carbonate prices, however, softened last week, trending lower amid geopolitical tensions, particularly in the Middle East, which fueled risk aversion and pushed out expectations for energy storage demand.
Restocking activity slowed after the Chinese New Year holiday, intensifying the tug-of-war between upstream and downstream players. In the near term, supply and demand are expected to return to a tight balance, with prices likely to trade in a range of Yuan 140,000-170,000/tonne pending further direction from downstream electric vehicles demand.
Driven by recovering downstream demand, cost pass-through, and improving earnings expectations, operating rates for both iron phosphate and LFP cathode materials continued to rise last week.
Precursor operating rates climbed to around 76%, with major producers operating near full capacity, reasonable inventory levels, and tight spot availability in some regions. LFP cathode material operating rates reached approximately 72%, reflecting accelerated demand from downstream sectors, particularly energy storage.
If demand continues to recover, industry operating rates are expected to rise further, driving production growth, accelerating industry consolidation, and prompting smaller producers to upgrade.
According to the latest data from the China Automotive Battery Innovation Alliance, total production of power and energy storage batteries in China reached 141.6 GWh in February 2026, down 15.7% month-on-month but up 41.3% year-on-year. Of this, LFP battery production stood at 114.6 GWh, down 16.1% month-on-month but up 41.7% year-on-year, accounting for 80.9% of total combined output.
In terms of installations, power battery installations in February totaled 26.3 GWh, down 37.4% month-on-month and 24.6% year-on-year. LFP batteries accounted for 20.6 GWh, or 78.3% of total installations, down 36.9% month-on-month and 27.5% year-on-year.
For January-February combined, cumulative power battery installations reached 68.3 GWh, down 7.2% year-on-year, with LFP installations totaling 53.3 GWh, representing 77.9% of the total and down 9.2% year-on-year.
Entering March - April period, market players generally anticipate an improvement in power battery demand, supported by the full resumption of operations following the holiday, sustained policy backing under the "carbon peaking and neutrality" framework, rural EV promotion campaigns, and the rollout of energy storage subsidies.
Together with stable orders from the energy storage sector, these factors are providing solid demand support and boosting confidence among upstream battery material suppliers. LFP cathode operating rates are expected to continue trending upward in March.
In summary, while February demand softened due to seasonal factors, LFP batteries maintained a stable share above 80%, cementing their dominant position.
March is expected to see a demand recovery driven by policy support and the full resumption of operations. Recent overseas supply disruptions have heightened market expectations for tighter lithium carbonate supply, while domestic developments, such as the pace and actual output of the Jianxiawo mine restart, will also be critical to feedstock stability.
Going forward, market attention will remain on feedstock dynamics, downstream procurement tenders, and the pace of end-demand realization.
Written by Aggie Hu, huchenying@mysteel.com
