China's LFP (lithium iron phosphate) cathode material production capacity has been ramping up rapidly in recent years thanks to the booming new energy vehicle (NEV) market, which recorded 2.92 million tonnes/year (Mt/y) as of September 2023, with another 10 Mt/y under planning, per Mysteel survey.
In the meanwhile, the prices of LFP cathode materials embarked on a downward trend entering 2023 and reported a fall of 167% year-to-date (TYD) at Yuan 60,000/tonne as of September 21. Apart from overcapacity, less-than-expected end-market demand as well as falling lithium ore prices together contributed to the bear market.
Source: Mysteel
Looking back on the first three quarters of 2023, the prices dropped the most significantly in March, when LFP prices registered a monthly drag of 49% amid slowing economic recovery and pessimism over future macro economy.
Nevertheless, the plunge was followed by a solid rebound in April and May owing to rallying lithium carbonate prices and battery manufacturers' stockpiling.
LFP prices returned to the downtrend in July as the end-market demand weakened, which led to shrinking orders from top-tier battery cell manufacturers.
1. LFP manufacturers' capacity utilization rates dropped constantly
The LFP manufacturers generally suffered falling prices and operating losses, thus reduced the capacity utilization rates though the total production is estimated to rise 54% YoY at 1.06 million tonnes over the first three quarters.
Source: Mysteel
The average capacity utilization rate of domestic LFP manufacturers is projected at 50% over January-September, down 32 percentage points compared with 2022. Specifically, the average capacity utilization rate hit a two-year low this April at 30%, according to Mysteel survey.
Source: Mysteel
2. Overcapacity led to intensifying competition
Domestic LFP production capacity recorded 2.92 million tonnes/year (Mt/y) as of September 2023, with another 10 Mt/y under planning, per Mysteel survey. There are currently 12 LFP manufacturers with a capacity of over 100,000 t, taking up 77% of the total.
Source: Mysteel
Apart from established top-tier manufacturers, coal chemical and petrochemical plants as well as battery manufacturers including CATL, BYD, EVE Energy, and Gotion High-tech have all engaged in this sector through investment, etc.
Source: Mysteel
With over 10 Mt/y capacity expected to come on stream in the next few years, the competition is becoming increasingly intensive, hence cost control will become extremely important amidst deepening overcapacity.
3. Market potential remains vast
Despite overcapacity of LFP cathode materials, the end-market is still with vast potential.
China's NEV penetrate rate has reached 33% by August 2022, against 14% globally in 2022. Moreover, cheaper LFP batteries once again overtake the market with NEV subsidies fully cancelled in China by end-2022.
It is projected by professionals that the LFP cathode material demand will exceed 4 million tonnes by 2026.
The energy storage sector is another strong diver for LFP demand. According to China Industrial Association of Power Sources, the market size of innovative energy storage will surpass Yuan 1 trillion by 2025 and Yuan 3 trillion by 2030.
In summary, it is almost a forgone conclusion that China's LFP cathode material sector will be challenged by overcapacity for some time, with new projects coming on stream intensively in the next few years.
Therefore, technology upgrading, cost control and synergy are among the strategies for LFP manufacturers to survive and even outperform.
Written by Aggie Hu, huchenying@mysteel.com
