SHANGHAI, Aug 1 (SMM) - China LFP output stood at 340,000 mt in the first half of 2022, up 122% YoY, and an increase of 31% from the second half of 2021.
LFP production showed palpable growth in the first half of 2022, and the output during this period is already about 83% of the annual output in 2021. The LFP industry encountered multiple unfavourable factors in the first half, including the shortage of the lithium carbonate, the sharp rise in raw material prices, the reduction of downstream production due to the pandemic lockdown, and the de-stocking strategy adopted by battery cell factories, while the monthly output was maintained above 50,000 mt except for April when the COVID-19 pandemic situation was the most serious. In July after the impact of the pandemic completely subsided, the LFP output refreshed the historical high again, with a monthly output of more than 70,000 mt.
At the beginning of the year, the demand in the downstream power market was still at a high level, and most manufacturers actively restocked ahead of the Chinese New Year. In this case, the operating rates of LFP materials kept rising, while new capacity was also released at a fast pace in order to fulfil the robust market demand. However, the inventory held by lithium salt factories was at an absolute low level by then, hence the market supply was tight, limiting the production growth of LFP materials. In addition, a few LFP manufacturers were closed for maintenance during the Chinese New Year holiday, hence the output dropped slightly.
From March to April, after the car manufacturers rushed to meet their annual targets at the end of the previous year, the sales dropped during this period while the LFP production was still on the rise, hence the inventory carried by LFP and battery companies was high. Since mid-March, the COVID pandemic broke out again in many places in China, and the terminal demand plummeted, with frequent production cuts or suspensions among some top-tier car and battery cell companies. The leading battery companies took measures to reduce the inventory of battery and raw materials, leading to less demand for LFP materials. At the same time, lithium salt prices were quite volatile during this period, and most LFP factories became cautious toward raw material purchases and finished product sales, and the commissioning of new capacity also slowed down. The market players were wait-and-see apart from purchases on rigid demand, and LFP production dropped continuously.
From May to June, the impact of the pandemic gradually subsided, and the terminal market picked up and was on track for a full recovery. Battery cell factories also ramped up the purchasing of LFP materials. Coupled with the accelerated release of new capacities by companies like Yuneng, An’da and Jintang Shitai, industrial production posted rapid growth. As of June, the monthly production set a record high of 73,800 mt. Overall, with the accelerated expansion of downstream battery cell sector, there is still further room for growth in LFP output.
In terms of market landscape, there are 5 LFP enterprises with a monthly output exceeding 25,000 mt in the first half, namely Hunan Yuneng, Dynanonic, Changzhou Liyuan, Hubei Wanrun and Rongtong Hi-Tech. The above-mentioned manufacturers produced a total of nearly 230,000 mt of LFP in the first half of the year, with a CR5 of 68%, an increase of 5 percentage points compared with the previous rate of 63%.
On the whole, the current LFP industry is still in a period of concentrated release of new capacities. The top 5 LFP enterprises represented by Hunan Yuneng have been expanding rapidly and are deeply bound with the major downstream battery cell enterprises, and the supply has increased rapidly. Among them, Hunan Yuneng's nominal production capacity has been raised to more than 400,000 mt, a sharp lead over its peers. And companies such as Dynanonic and Changzhou Liyuan also have several production lines to be released with a single-line capacity of 100,000-150,000 mt. In contrast, although the second-tier LFP enterprises are also expanding rapidly, the overall speed and scale fall behind those of the top-tier ones. Therefore, the market share is diluted to a certain extent, and the market concentration rate grows further.
In addition, considering that it is still in the period of concentrated release of LFP capacity, the situation of oversupply may become more and more obvious in the second half of the year. As upstream lithium salt prices remain high, the profits of downstream LFP enterprises will be further squeezed, making it increasingly difficult of medium-sized companies to survive.