China's lithium-ion battery industry chain is gradually shifting in the second half of 2026, moving away from a simple surplus and price-war dynamic toward structural differentiation and a rebalancing of supply-demand toward tightness.
The September production of battery cells is expected to hit year-to-date (YTD) peak on the demand side, but whether this strength can be sustained remains uncertain. On the supply side, near-term destocking of lithium carbonate is providing support, though medium-term ore arrivals are likely to cap gains. Policy shifts and technological advances are simultaneously re-aligning profit pools and technology roadmaps.
Overall, the industry is recovering gradually, with structural differentiation playing a more important role than aggregate growth.
Source: Mysteel
Demand: September Production Peaks, Energy Storage Leads with Underlying Risks
DD Times Think Tank's survey of 38 major battery producers shows China's September 2026 lithium-ion battery production schedules (power, energy storage, and consumer) at 332 GWh, up 9.2% month-on-month. Global production is estimated at 346 GWh, up 9.1%. Energy storage cells account for 130 GWh, or 39% of the total. The increase is largely driven by overseas exports of 314Ah and larger-capacity cells, as year-end grid-connection deadlines in the US and Middle East have led to full order books at leading battery producers.
September production confirms the traditional peak-season peak, yet underlying demand appears to be softening as some of the strength is due to front-loading ahead of the consumption tax, which was introduced at 2% on September 1, 2026 and will increase to 4% in September 2027.
LFP cathode production is only rising 5-6% month-on-month during the same period, below the 9.2% increase in cell production, while cathode offtake rose 7%. The gap suggests a timing mismatch in material stocking. With overseas stockpiling nearing completion and domestic large-scale storage cell prices frozen in the Yuan 0.38-0.41/Wh range, September may mark a peak rather than an acceleration. Q4 momentum will hinge on whether large-scale cell storage price negotiations break the deadlock.
Supply and Lithium Prices: Near-Term Destocking Pushes Higher, Ore Arrivals to Cap, 2027 in Tight Balance
Mysteel assessed battery-grade lithium carbonate at Yuan 158,750/tonne in the evening session on September 1, while the GFEX LC2701 contract closed at Yuan 157,860/tonne. As of August 26, China's total lithium carbonate inventories across 207 sampled firms dropped 4.52% week-on-week.
Looking ahead to mid-to-late September, lithium prices are likely to move higher driven by spot inventories continuing to draw down, peak-season downstream stocking, and supply additions not yet fully offsetting demand. The base case points to Yuan 170,000/tonne, with potential to reach Yuan 170,000–180,000/tonne if breached, though the upward slope is likely to be moderate as downstream buyers remain cautious at higher levels.
From late November, arrivals of spodumene concentrate from Australia and Zimbabwe, along with South American salt lake imports, are expected to accelerate. This incremental feedstock supply will gradually feed into lithium salt output, raising supply. At the same time, raw material stocking for new annual contracts and the pre-export-rebate-removal rush will be largely complete by end-November, leaving demand weaker and putting downward pressure on prices.
For 2027, Mysteel expects lithium prices to follow a quarterly pattern. In Q1, prices are likely to trend downward, pressured by greater certainty over ore supply growth, the seasonal lull, and front-loaded demand. In Q2, prices are expected to move higher, supported by peak-season stocking and inventory drawdowns. In the second half, further gains are expected as energy storage demand and power battery peak-season activity converge. Overall, the price range is set to narrow, with lower volatility compared with the wide swings of 2026.
To be more specific, the global lithium balance sheet is expected to tilt toward a modest drawdown or tight balance. Low-cost salt lakes and integrated mines (cash costs of Yuan 30,000-80,000/tonne) will continue to capture margins, while converters relying on outsourced feedstock will revert to a processing-fee model. The price center will be anchored by the cost curve and the breakeven line for marginal capacity.
Policy: Consumption Tax Phased In, Deepening Tier Differentiation Among Cell Producers
According to Announcement No. 7 of 2026 collectively issued by the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration, a 2% consumption tax will apply to lithium-ion batteries from September 1, 2026, rising to 4% from September 1, 2027. Solid-state and sodium-ion batteries are exempt through end-2028. The tax is levied at the cell manufacturing stage, with upstream lithium salts and cathode active materials not directly taxed.
Leading cell producers, backed by their own lithium resources, long-term contracts, and strong bargaining power with OEMs, have been able to issue price adjustment notices to pass through the tax.
Smaller ones, however, are caught in a double squeeze, where their customers - the automakers - typically demand annual price reductions, while the 2% consumption tax that took effect September 1, 2026 must be absorbed or at best partially passed on. As a result, some smaller players may choose to walk away from low-margin domestic large-scale storage project tenders and shift capacity toward higher-margin overseas storage or power battery orders. In extreme cases, temporary production curtailments are possible. Vertically integrated producers that consume their own cells internally and do not sell them externally are not subject to the tax.
In sum, the consumption tax is set to differentiate cell producers by resource self-sufficiency and customer pricing power, accelerating consolidation among second and third-tier players, while the broader industry chain avoids widespread price shocks.
Technology: Standards Defined, Solid-State Moves from Concept to Production Validation
In August 2026, China's proposal for Guidelines, Test Items and Conditions for the Application of Solid-State Batteries in Secondary Lithium-Ion Batteries for Electric Vehicle Propulsion was successfully registered with the IEC, marking the world's first international standard for solid-state batteries. In July 2026, the national standard GB/T 43568-2026 for automotive solid-state batteries came into effect, unifying terminology.
2026–2027 will likely be a period for vehicle integration of semi-solid-state batteries and pilot-scale production of all-solid-state, rather than commercial deployment. BYD, CATL, and Gotion are aiming for small-batch production in 2027, with larger-scale releases in 2028–2030. All-solid-state batteries' costs remain 3-4 times higher than current liquid systems.
Orders for sulfide electrolytes, dry-electrode equipment, and lithium-metal anodes will likely come first, when valuations will lead and earnings will follow.
Conclusion: A Gradual Recovery with Shifting Power of Influence
The second half of 2026 represents not a bull-bear transition but a layered recovery. Leading energy storage cell producers are benefiting from strong volumes and pricing power; the solid-state chain is supported by both technology standards and tax exemptions; while marginal liquid electrolyte cell producers are squeezed by annual price cuts and the consumption tax.
On supply, near-term destocking should push lithium carbonate prices toward Yuan 170,000/tonne, with pressure emerging from late November, and a modest drawdown or tight balance expected in 2027. Price movements remain tied to the broader profit recovery cycle.
The industry's power of influence is shifting away from "capacity scale" toward order structure, resource self-sufficiency, and participation in standard-setting.
In the near term, September confirms the peak-season peak; Q4 momentum depends on whether the domestic large-scale storage cell price stalemate breaks.
Written by Aggie Hu, huchenying@mysteel.com
