[SMM Analysis] Tenders launched by major battery cell manufacturers. Will LFP prices continue to fall in H2?

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Major battery cell manufacturers launch tenders – will LFP prices continue to fall in H2?

LFP prices primarily consist of two components: bundled processing fees (also known as valuation in the industry) + lithium carbonate price × settlement discount, with the bundled processing fees already incorporating raw material iron phosphate costs and processing expenses.

In pricing negotiations, upstream and downstream parties primarily focus on these two aspects, though commercial terms like payment periods are also considered. Generally, once bundled processing fees are agreed, they remain unchanged for monthly or quarterly execution cycles unless unexpected fluctuations occur in iron phosphate raw material prices. Therefore,LFP prices mainly fluctuate in line with lithium carbonate prices.

Starting from early April this year, lithium carbonate prices have experienced sustained and significant declines, gradually falling below the market's perceived "bottom-buying threshold."

[Source: SMM battery-grade lithium carbonate average price]

Closely correlated with lithium carbonate prices, LFP prices inevitably followed a sharp downward trajectory during these three months.

As of now,they have accumulated an average decline of over 3,000 yuan/mt, with May seeing the largest single-month drop (-5.3%), while April (-2.3%) and June (-2.7%) showed relatively smaller declines.

[Source: SMM LFP average price]

How will LFP prices evolve in H2? Analysis of raw material prices, processing fee trends, and downstream demand suggests a generally stable but weakening trajectory. The price floor depends on lithium carbonate price movements and processing fee trends.

"Iron phosphate price hikes successfully drove Q1 2025 processing fee increases"

Most companies finalized their 2025 processing fees before March,with overall increases ranging from 500-3,000 yuan/mt.The primary driver was the sharp rise in iron phosphate prices since December 2024. Continuing with original bundled processing feeswould have exacerbated losses for LFP material manufacturers, threatening normal operations.Meanwhile, downstream battery cell manufacturers raised processing fees to manage market volatility and stabilize supply chains. Post-adjustment,Q2 processing fees remained generally stable.

However,material manufacturers' pursuit of further price increases persists– despite prior adjustments, they continue negotiating additional hikes with battery cell manufacturers. However, market dynamics shifted in late April, with demand growth for iron phosphate slowing down. To secure orders, iron phosphate plants flooded the market with low prices, driving the average price of iron phosphate into a downward trend. Material producers, which previously maintained strong reluctance to budge on prices, lost a critical bargaining premise—rising iron phosphate prices. Despite active attempts to negotiate price hikes with battery cell manufacturers from April to June, material producers failed to achieve their targets.

[Source: SMM Iron Phosphate Average Price]

Hopes for further increases in LFP processing fees may prove unfounded.

In June, a major battery cell manufacturer launched tenders for LFP materials for H2. As anticipated, material producers quoting higher prices mostly lost the bids, while successful bidders generally offered lower prices. Excluding long-term agreement suppliers exempt from bidding, approximately four suppliers secured initial tenders, with unsuccessful bidders entering subsequent negotiations with the battery cell manufacturer individually.

Based on current information, this tender signals three developments:

• H2 processing fees may trend lower than H1 levels. Although no definitive outcomes have emerged, battery cell manufacturers might leverage declining iron phosphate prices to drive down costs. SMM forecasts processing fees will struggle to rise in H2.
• Certain third- and fourth-tier material producers have entered major manufacturers' supply chains with low prices. Aggressive pricing has become critical for smaller material producers to secure orders from leading players, enabling battery cell manufacturers to achieve cost reductions. Consequently, the Gen 2 product market has intensified, with supply far exceeding demand. Losses dominate this product line due to below-cost sales.
• Gen 3 prices are approaching original Gen 2 levels. As Gen 3 material capacity also enters surplus, price reductions to secure orders have become widespread for Gen 3 products. Prices are even approaching Gen 2 levels, rendering Gen 3 unprofitable for some producers. This trend suggests Gen 3 prices will not significantly exceed Gen 2 in the future, though specific bargaining power depends on downstream battery cell manufacturers' scale. However, Gen 3.5 and Gen 4 products still retain pricing resilience. Detailed SMM LFP price data is available for reference. This primarily relates to product supply-demand dynamics: SMM's latest survey indicates approximately 6-7 suppliers for Gen 3.5 products and only 2-3 for Gen 4 products. In contrast, over 30 suppliers compete in the Gen 2 segment and over 25 in Gen 3, reflecting fierce competition.

The outlook for a significant rebound in lithium carbonate prices in H2 remains unclear.

Another key factor influencing LFP prices is the price of lithium carbonate. SMM believes that the growth rate of overall end-use demand will gradually slow down in H2 2025. Currently, there is no unexpected increase in demand, and when transmitted to the monthly production of LFP, the growth rate appears mediocre. The recent monthly production growth rate of LFP has also remained basically within 5%, approaching the growth rate of ternary cathode material. Therefore, the possibility of an improvement in the supply-demand pattern of lithium carbonate in H2 remains unclear, and it is difficult for its price to reverse the trend against the market.

Taking all the above points into consideration, the price war for processing fees is intensifying. Along with the difficulty in reversing the trend of lithium carbonate prices, there is a high possibility that LFP prices will continue to operate at a low level in H2. In this situation, material factories that lack the funds to support normal operations will face the risk of exiting the market, being acquired, or becoming toll processors.

SMM New Energy Research Team

Wang Cong 021-51666838

Ma Rui 021-51595780

Feng Disheng 021-51666714

Zhou Zhicheng 021-51666711

Wang Zihan 021-51666914

Lv Yanlin 021-20707875

Zhang Haohan 021-51666752

Wang Jie 021-51595902

Xu Yang 021-51666760

Chen Bolin 021-51666836