According to SMM data, in 2023, China's lithium iron phosphate (LFP) production totaled 1.16 million tons, a 56% increase compared to 2022.

SMM research indicates that market expectations for LFP in 2023 were too high, with production capacity growth rate far exceeding demand growth rate by 152%, as capacity increased from 1.48 million tons at the end of 2022 to 3.73 million tons at the end of 2023. The production capacity growth rate for LFP in 2023 was 152%, which is significantly higher than the production growth rate of 56%. However, the demand growth rate was below expectations. During 2023, the release of new production capacities led to intensified industry competition, as both new and older enterprises began reducing prices to compete for market share, dragging down the price of LFP continuously. Especially entering July 2023, as the prices of raw materials - such as phosphorus and iron sources, and auxiliary materials for LFP production - began to rise, the production costs of LFP started to increase. Despite this, there was an excess capacity and a supply-demand imbalance at the time, making it difficult for costs to be passed on to downstream customers, and profits for LFP companies started turning from positive to negative. Entering the fourth quarter, although the production costs for companies slightly decreased, due to weak downstream demand, the downward speed of LFP spot prices was even faster, leading to severe losses across the industry and intensifying industry consolidation. By the end of 2023, the spot price for LFP had fallen to 107,000 yuan per ton, a decline of 51.36% from the end-of-year price of 220,000 yuan per ton in 2022.

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