【SMM Analysis】China's Lithium Battery Recycling Sector Faces Headwinds Amidst New Regulations and Market Squeeze

China’s lithium battery recycling sector is entering a critical adjustment phase. On August 1, regulators formally classified black mass, an intermediate product from spent lithium-ion batteries, as a recyclable raw material, covering both NCM and LFP types under customs code 382499996. The new rules go beyond existing national standards, setting stricter performance benchmarks, prohibiting mixed shipments, and requiring double-layer packaging. Damaged packaging must be reinforced with ton bags. Customs inspections are conducted under Announcements No. 43 and 23, with Ningbo pioneering advanced testing methods. While compliant shipments are cleared, excess impurities can lead to partial or even full-batch rejection. Enforcement has been particularly strict during the initial stage.

Beyond regulation, market conditions remain strained. Industry capacity utilization is only about 30%, leaving the sector trapped in overcapacity and fierce price wars. Transparent pricing has even caused domestic–international price inversions, further squeezing profits. To “break the spiral,” companies are downsizing staff, suspending or partially halting production, lowering processing fees, improving recovery rates, and shifting profit reliance toward black mass and smelting feedstock. Technological hurdles also persist. Fluoride removal still requires high-temperature calcination to meet standards, with even tougher thresholds overseas. Cooperation between recyclers and powdering mills under the Basel Convention often depends on trade associations to facilitate negotiations. Customs clearance currently takes 7–14 days, leading to calls for streamlined procedures to improve efficiency. Operational safety has become another pressing concern. Nano-grade LFP black mass dust poses significant health hazards, requiring workers to wear masks, gloves, and protective clothing, while maintaining strict cleaning routines. Packaging defects at the factory level can directly affect customs inspection and clearance. Industry participants stress the importance of checking official requirements on the China Quality website and call for alliances and unified pricing systems to reduce distortions and promote compliance.

In recent months, Chinese companies have been importing Southeast Asian black mass at lower prices, though quality lags behind Chinese standards, with a 5–10% difference in payable rates. Meanwhile, the rebound in lithium carbonate prices is lifting black mass valuations. Due to high-cost pressures from hydrometallurgical processes, some companies have turned to outsourcing. At the same time, new chemical processes have been developed that can detach copper foil and cathode or anode materials, achieving nearly 100% recovery. Despite these challenges, SMM believes China’s recycling sector is supported by strong long-term demand from energy storage and electric vehicles. Both policymakers and companies agree that unified pricing, streamlined customs procedures, improved worker safety, and technological upgrades are essential for sustainable growth. Moreover, SMM has observed that ASEAN markets generally have the lowest payable rates for black mass, with limited LFP resources as their supply is mainly focused on ternary black mass.