Demand blowout + Phosphoric Acid Price drop Lithium Iron Phosphate Enterprises are expected to further improve their profitability.

Towards the end of the year, a round of new energy car building boom suddenly swept, affected by this, lithium battery cathode material lithium iron phosphate once again attracted the attention of the capital market. Financial Associated Press reporters learned that at present, a number of lithium iron phosphate production enterprises full orders, high capacity load, even so, still can not fully meet the hot downstream demand.

With the explosive growth on the demand side and the decline in the prices of some raw materials, the low profit level of lithium iron phosphate production enterprises in the early stage is expected to be improved. An executive of a lithium iron phosphate production enterprise in Shandong Province told the Financial Associated Press, "in the case of a shortage of supply, the bargaining power of lithium iron phosphate production enterprises to battery factories has improved, and the prices of some raw materials are also falling. The profitability of lithium iron phosphate production enterprises is expected to improve."

The quantity and price of lithium ferric phosphate have risen simultaneously due to the popularity of the car market.

Since November, the domestic new energy vehicle market has been extremely hot, and the sales of major car companies have increased significantly. Recently released data show that Xiaopeng, ideal, Lulai, Nezha four new energy vehicle companies delivered more than 10,000 new energy vehicles a month, other car companies also handed over record-breaking sales data.

According to the notice of four ministries on improving the financial subsidy policy for the promotion and application of new energy vehicles issued by the Ministry of Industry and Information Technology in April this year, the implementation period of the financial subsidy policy for the promotion and application of new energy vehicles has been extended to the end of 2022. Based on the strength and pace of subsidy decline, in principle, the subsidy standards for 2020-2022 have declined by 10%, 20% and 30% respectively on the basis of the previous year. This means that from 2022, the subsidy standard for new energy vehicles will fall by 30% from 2021.

After the subsidy goes downhill, the price of new energy vehicles will rise, which has almost become the consensus of the industry and consumers. A salesperson of a new energy car brand told the Financial Associated Press that recently, many car companies have begun to convey to consumers that the decline of subsidies next year will lead to a rise in the price of new energy vehicles, which has also stimulated consumers' desire to buy.

The popularity of the new energy car market has brought about a rise in the price of lithium iron phosphate materials.

The profit space of the enterprise is expected to be further improved.

Due to the extremely single downstream customers, lithium iron phosphate market has been squeezed under the competition of ternary materials, and the profitability of production enterprises has been mediocre in the past.

A reporter from the Financial Associated Press combed through the data and found that among the major domestic lithium iron phosphate production enterprises, 002805.SZ has a gross profit margin of about 10.91% for lithium battery cathode materials in 2020; 002741.SZ Technology (Guanghua Technology) has a comprehensive gross profit margin of only 4.9% for lithium battery materials; even if it is 300769.SZ, the industry leader, its gross profit level of lithium iron phosphate is only 10.18%.

Since the beginning of this year, with the improvement of the relevant technical level, the downstream demand for lithium iron phosphate has skyrocketed, so product prices have continued to rise, and the profitability of relevant enterprises has been improved. According to the announcement, the gross profit level of German nano-lithium iron phosphate has exceeded 20% in the first half of 2021.

The senior executive of a lithium iron phosphate production enterprise in Shandong told the Financial Associated Press, "although the downstream of lithium iron phosphate enterprises is still mainly oriented to battery factories, in the case of a shortage of supply, there are signs of competition among battery enterprises for the supply of lithium iron phosphate, which makes lithium iron phosphate production enterprises have stronger bargaining power in the face of battery factories, and their profitability will be further improved."

Recently, 002805.SZ announced that its wholly-owned subsidiary Fengyuan Lithium Energy and Penghui Energy (300438.SZ) signed a "cooperation agreement" to purchase lithium iron phosphate and other products from Fengyuan Lithium Energy from December 2021 to December 2022, with a total contract value of about 800m yuan.

The reporter learned that since the second half of this year, Fengyuan began to supply lithium iron phosphate to 002594.SZ in bulk, and the products supplied to BYD in the third quarter accounted for more than half of the company's production and sales of lithium iron phosphate in the same period. The cooperation between the company and Penghui Energy will more or less squeeze the company's share of supplying lithium iron phosphate to BYD.

In addition, as a necessary raw material for the production of lithium iron phosphate, the decline in the price of industrial phosphoric acid has also had a positive impact on the profits of lithium iron phosphate enterprises. It is reported that the current market price of 85% industrial grade thermal phosphoric acid is about 11000 yuan / ton, which is nearly halved from the high point of 21000 yuan / ton in the middle of the third quarter. Han Minhua said that although the recent increase in demand for lithium iron phosphate will bring a certain boost to the phosphoric acid market, it is difficult to return to the previous high level.

In addition, the Financial Associated Press reporter learned that lithium iron phosphate industry is generally expanding production capacity, among which, German Nano, Fengyuan shares and other lithium iron phosphate enterprises' new production capacity has been put into production, with the production capacity climbing and the rate of quality products increased, its production costs will gradually decline, and the profit space of lithium iron phosphate enterprises is expected to further expand.