Han Minhua, Sublime China Information

Optimistic outlook with both pressure and opportunity coexisting

Lithium iron phosphate materials once again become the hot spot of new energy vehicle industry in early 2020 as the energy density of lithium iron phosphate batteries improved, and the subsidy policy restricted the vehicle prices. The acceleration of the 5G process also stimulated the demand for energy storage batteries in communications, and many operators have invested in energy storage batteries to construct their 5G signal base stations, quickly promoting the production and sales of lithium iron phosphate. In 2020, with the support of power and energy storage, lithium iron phosphate has successfully attracted attention of the lithium industry. Despite these opportunities, the lithium iron phosphate enterprises are still facing pressures.

With low bargaining power, enterprises are hard to grow profitable

The cathode materials have been under pressures from both upstream and downstream. As for upstream, the prices of cobalt, lithium, and nickel, as resource-based products, are mostly influenced by their own supply and demand, with high unit price and frequent fluctuations in large bands. Cathode materials hence have limited bargaining power over raw material suppliers. As for downstream, cathode materials are highly dependent on battery manufacturers. As the battery industry is highly concentrated, with the top 2 taking 70% of the market shares, cathode material enterprises must compete fiercely to become the supplier of those leading battery manufacturers. 

As a cathode material, lithium iron phosphate faces the same problems: too many manufacturers, fierce price competition, low bargaining power, and market prices fluctuating together with the raw materials.

Chart 1 shows that, from 2020 to 2021, lithium iron phosphate market price increase was mainly driven by the continuous upstream price’s growth.

Chart 1 Lithium iron phosphate market price trend, 2020-2021

In the past six months, the market prices of lithium iron phosphate and its raw materials have both gone up to different degrees. Table 1 compares the price increases of lithium iron phosphate and its raw materials.

Domestic capacity growth accelerates to a bright future

How could lithium iron phosphate, squeezed by both upstream and downstream, attract so many investments from players in and outside of the industry? The reason is that there is a huge prospect in the lithium iron phosphate industry.

In early 2020, BYD launched its "blade battery", which optimized the space utilization of the battery pack and technically improved the problem of low energy density of lithium iron phosphate battery, making lithium iron phosphate power battery popular among new energy vehicle companies because of its cost-effective advantages. In 2020, many vehicle companies launched new cars with lithium iron phosphate battery, favored by consumers. Besides the support fromthe new energy vehicles, 5G’s progress and signal base station constructions are also favorable to energy storage batteries. The replacement of traditional lead-acid batteries by lithium iron phosphate energy storage batteries is speeding up, so are the growths of the production and sales of lithium iron phosphate. In 2020, China's lithium iron phosphate production rose by 54.77% year-on-year, and its installed capacity grew 20% year-on-year. In 2021, the requirement of "14th Five-Year Plan" on carbon emission peak, carbon neutrality, and the development of low-carbon economy will continue to benefit new energy vehicles as well as the photovoltaic and wind power industries, hence promoting demand for the power storage industry.

The supporting policy makes lithium iron phosphate attractive, and the demand for lithium iron phosphate on its power and energy storage properties are expected to continue to grow in the next years. Accordingly, the leading cathode material companies are accelerating the constructions of lithium iron phosphate production capacity.

Table 2 shows China’s lithium iron phosphate planning after 2021. According to incomplete statistics, there are nearly 20 companies planning to expand or build new lithium iron phosphate capacities, with the total expansion reaching 1 million tons. As most of these construction cycles are 2 to 3 years, China's lithium iron phosphate capacity in 2025 will be more than 4 times that of 2020, if all these capacities are launched. 

The new capacities are from both the existing players of this sector who want to expand their market shares, such as Shenzhen Dynanonic and BTR, and some new players.CNNC, a leading company in titanium dioxide industry, planned to build 500kt/a lithium iron phosphate by three phases, using the by-products waste acid and ferrous sulfate during the production of titanium dioxide. They would have a cost advantage of nearly RMB10 000 over the traditional cathode material manufacturers and bring the competition of lithium iron phosphate industry to a new level after the capacities are put into operation.

Vertical integration of the industry chain to be the direction of development

As the demand for lithium iron phosphate from power batteries and energy storage batteries will grow exceptionally in the following years, lithium iron phosphate will become a bulky commodity. Despite such favorable environment, the producers need to survive the increasingly fierce competition.To ensure the capital turnover and become profitable is the problem that the lithium iron phosphate enterprises need to consider.

At present, lithium iron phosphate prices have been flat with its cost for a long time. With the new players coming in and thus fiercer competition, lithium iron phosphate manufacturers would find it hard to ensure the net profit by maintaining high operating rates to squeeze cost. SCI believes that in the future, fighting alone will be the solution, and the vertical integration of the industry chain will be the main direction of the development.Lithium iron phosphate enterprises can form an integrated raw material supply - production – sales model by strengthening cooperation with upstream enterprises and tightly combining with downstream battery manufacturers. Such integration could reduce costs and increase efficiency to ensure profits, and hence make lithium iron phosphate companies invincible in the increasingly competitive environment.