SMM, August 13 – LFP Market Weekly: Processing fees rise day by day; supply tightness persists
This week, lithium iron phosphate (LFP) prices generally tracked lithium carbonate. Driven by upstream lithium salt price volatility and processing fee increases, LFP processing fees trended upward day by day. Downstream demand remained strong. Since August–September, cell production schedules have exceeded LFP production schedules, and the industry is in a tight balance with demand outpacing supply.
I. Price trends
LFP processing fees: Processing fees continued to rise last month, and this week SMM LFP prices extended their upward trend, with processing fee levels rising day by day. Cathode producers are still actively negotiating price increases with cell makers, and cost pass-through remains underway.
Iron phosphate prices: New order prices over the past two weeks have largely been settled, with a further slight increase this month; most quotes rose to around RMB 15,500/mt. For next month’s orders, most iron phosphate producers believe that if raw material prices do not rise further, iron phosphate prices may stop climbing. This implies that cost pressure on LFP producers could ease somewhat next month.
II. Supply-demand pattern: raw material shortage, not capacity shortage
The core issue is not insufficient capacity but constrained raw material supply. In September, non-integrated LFP producers are generally constrained by iron phosphate supply, with procurement difficulties and insufficient supply becoming more prominent. Meanwhile, iron phosphate supply is similarly tight—producers have greater initiative in customer selection and tend to prioritize delivery to higher-paying customers, while low-paying customers may struggle to secure material.
On the inventory side, cathode material industry inventory days have fallen from 10–11 days to 7–8 days, a significant destocking that further confirms supply tightness. This tight supply-demand pattern is expected to persist in September, October, and even the entire second half of the year.
III. Company dynamics
Capacity expansion: September output will mainly depend on the ramp-up progress of new production lines. If ramp-up goes smoothly, September industry production schedules may be raised further, and monthly schedule data will be updated accordingly.
Product mix upgrade: Leading producers have largely abandoned low-value-added single-sintered material and fully shifted to high-compaction secondary-sintered products, with new capacity mainly consisting of 3.5-generation to 4th-generation materials. This strategic shift is mainly driven by accelerating ramp-up of large-capacity cells in the commercial vehicle and energy storage sectors, where demand for high-compaction materials continues to rise. Conventional materials can be supplied by ordinary producers outside the leading companies. By focusing on high-value-added products, leading producers are expected to further improve product prices and profit margins.
Cathode suppliers’ bargaining power gradually strengthens: Some downstream cell makers that have linked settlement to iron phosphate prices have seen processing fees paid to cathode makers decline as phosphate prices fell. Against this backdrop, leading cathode producers have significantly changed their customer selection strategy: for cell makers willing to accept price increases, leading producers tend to allocate more incremental capacity; for customers with continually reduced processing fees, they only guarantee basic supply. This is the core reason why some cell makers that have not accepted price increases report being “unable to buy material”—it is not an industry-wide shortage, but rather strengthened selectivity among leading suppliers that are unwilling to supply low-price customers.
IV. Outlook
Overall, the LFP industry is expected to maintain a demand-stronger-than-supply pattern in the short term. Tight iron phosphate supply is the key variable constraining capacity release at non-integrated producers, while leading integrated producers continue to strengthen bargaining power and profitability through raw material self-sufficiency and product mix upgrades. Attention should be paid to leading producers’ new line ramp-up progress, iron phosphate price trends, and cell makers’ price hike negotiations, which will dominate the next phase of industry production schedules and price changes.
