Environmental Protection-Driven Production Restrictions Hit Hubei's Phosphorus Chemical Industry, Increasing Costs for Phosphorus-Based New Energy Products

SMM December 18 News:

Key Points: Since December 12, 2025, emergency controls have been implemented in key phosphorus chemical industry hubs such as Yichang and Jingmen in Hubei Province due to air pollution, compounded by the Yangtze River Protection Policy. This has resulted in 30% of small and medium-sized enterprises suspending production, while top-tier enterprises have cut production by 20%–30%. The supply of new energy raw materials, including industrial-grade monoammonium phosphate (MAP), which accounts for over 50% of the national total, has tightened, providing short-term price support and leading to continued cost increases for the new energy industry.

In December 2025, emergency controls were initiated in key phosphorus chemical industry hubs such as Yichang and Jingmen in Hubei Province due to air pollution, coupled with the Yangtze River Protection Policy. As a result, 30% of small and medium-sized enterprises suspended production, while top-tier enterprises implemented production cuts of 20%–30%. The supply of new energy raw materials, including industrial-grade MAP accounting for over 50% of the national total, has tightened, providing short-term price support and driving further cost increases in the new energy sector.

I. Core Event Timeline and Impact Scope: Environmental Protection
Since December 2025, Hubei Province has experienced regional air pollution episodes, with air quality in multiple areas including Yichang, Jingmen, and Jingzhou consistently ranging from light to moderate pollution levels. PM2.5 concentrations repeatedly exceeded the Grade II standard limits, triggering yellow alerts for heavy pollution weather in some regions. As one of the pillar industries in the area, the phosphorus chemical sector—due to emissions of particulate matter and volatile organic compounds during production—became a key target for emergency emission reduction controls.

In terms of impact scope, the production cuts and suspensions were characterized by concentration in core production areas and priority control over new energy-related capacity. In key industrial parks such as the Yichang Yaojiagang Chemical Park and Jingming Chemical Recycling Park, approximately 30% of small and medium-sized phosphorus chemical enterprises have completely halted production, while top-tier enterprises have implemented varying degrees of production cuts ranging from 20% to 50%. Among these, the supply capacity of industrial-grade MAP and purified wet process phosphoric acid, which directly serve the LFP industry chain, was most significantly affected, with an immediate supply decline of about 25%. Although LFP and LFP producers have not yet faced direct production restrictions, inventory alerts have been triggered due to tightened upstream raw material supply.

According to the emergency emission reduction measures table from the 2021 "Hubei Province Heavy Pollution Weather Performance Classification and Emission Reduction Measures for Inorganic Phosphorus Chemical and Sulphuric Acid Manufacturing Industries," enterprises with lower performance ratings (from A to D) generally face stricter production suspension, restriction, and transportation control measures under the same alert level, reflecting a differentiated, progressively escalating control approach based on rating and warning response. Grade A enterprises enjoy greater flexibility.

II. Dual Drivers Behind Production Restrictions: Environmental Protection as Priority
1. Short-Term Emergency: Worsening Air Quality Forces Enhanced Emission Reductions
The immediate trigger for these production restrictions is the regional heavy air pollution emergency response. According to monitoring data from the Hubei Provincial Department of Ecology and Environment, in early December, Hubei was affected by both stagnant weather conditions and pollution transport from the north, leading to an 18% YoY increase in the province's average PM2.5 concentration. Pollution indices in chemical industry-intensive cities such as Yichang and Jingmen repeatedly exceeded 110. Under the "Hubei Provincial Heavy Pollution Weather Emergency Plan," when regional air quality reaches light pollution levels and warnings persist, key industries such as chemicals and steel must initiate a Level 2 emergency response and implement "one factory, one policy" emission reduction measures. This directly triggered production reduction and shutdown orders for phosphorus chemical enterprises.

2. Long-Term Constraints: Policy Rigidity and Industrial Upgrade Resonance
Emergency control is merely the trigger; long-term policy constraints are the core logic behind the supply contraction in the phosphorus chemical industry. On one hand, extended policies under the "Ten-Year Fishing Ban" for the Yangtze River protection explicitly require that chemical enterprises within 1 kilometer of the riverbank in Hubei complete "closure, renovation, relocation, or transformation" by the end of 2025. Currently, areas like Yichang and Jingmen are at a critical period for shutting down outdated capacity. These environmental protection-driven production restrictions objectively accelerate the phase-out of outdated capacity. On the other hand, in January 2024, the MIIT and seven other departments issued the "Implementation Plan for Promoting Efficient and High-Value Utilization of Phosphorus Resources," which proposes strict control over new capacity and promotes green transformation of existing capacity. As a core province accounting for 35% of national phosphorus chemical production, Hubei is implementing supply-side reform requirements in the industry through stringent environmental constraints.

III. Transmission Effects on the Phosphorus Chemical and New Energy Industry Chains
1. Supply Side: Short-Term Gap Emerges, Price Support Strengthens
Hubei is a core production area for industrial-grade monoammonium phosphate (MAP) and purified wet process phosphoric acid in China, accounting for 52% and 48% of national production, respectively. These production restrictions have quickly led to short-term supply gaps for related products. According to SMM information, by mid-December, the quoted price for industrial-grade MAP had risen 0.7% from the beginning of the month to 6,800 yuan/mt, while the price of phosphoric acid increased 0.3% to 7,350 yuan/mt. Given that enterprise inventory is generally low (most enterprises have inventory sufficient for only 15-20 days of supply, with some even below 10 days), if polluted weather persists, there is room for further price increases.

2. Industry Chain: Divergent Risk Resistance in the New Energy Segment (Iron Phosphate and LFP)
Transmission along the industry chain shows characteristics of "tight upstream raw materials and divergent downstream impacts." For LFP cathode material enterprises, those with long-term contracts signed with top-tier enterprises such as Hubei Yihua and Xingfa Group can mitigate raw material supply pressure in the short term through secured long-term supply. However, small and medium-sized cathode plants already face risks of raw material supply disruption. For battery and automakers, current LFP inventory can still support 1-2 months of production, but they need to be vigilant about cost transmission from raw material price increases. LFP cathode material prices are expected to rise by 5%-10% within one month, thereby increasing power battery costs.

Cathode material enterprises: Those with long-term contracts signed with top-tier enterprises such as Hubei Yihua and Xingfa Group can alleviate raw material pressure in the short term through secured supply. Notably, Xingfa Group recently signed an 80,000 mt/year LFP toll processing agreement with BYD, reflecting the trend of top-tier enterprises locking in capacity through long-term contracts. Small and medium-sized cathode plants: Indeed face risks of raw material supply disruption. Market concentration continues to increase, with the top five enterprises already holding a 78% market share.

Considering that upstream and downstream players are still engaged in price increase negotiations, and top-tier enterprises have already started a second round of talks, LFP cathode material prices are expected to experience a mild rise in the short term, though the increase may be more moderate than originally anticipated.

3. Competitive Landscape: Advantages of Top-Tier Enterprises Further Highlighted
Environmental protection-driven production restrictions act as a "supply filter" for the industry: Top-tier enterprises with circular economy models and well-established environmental protection facilities, such as Hubei Yihua (whose new plant in Yaojiagang has achieved synergistic reduction of phosphorus, fluorine, and silicon emissions) and Xingfa Group (whose intelligent equipment reduces unit emissions by 30%), not only experience lower production reduction and shutdown rates than the industry average but can also accelerate the release of new capacity through capacity replacement policies. In contrast, small and medium-sized capacities with insufficient environmental investment and outdated technology will be phased out more quickly during these restrictions. Industry concentration is expected to increase from the current 45% to over 60% by the end of 2026.

Special Focus: 2026 will be the final year for capacity replacement in Hubei's phosphorus chemical industry, and the industry's supply structure will largely be finalized. Enterprises with three major advantages—resource self-sufficiency (phosphate ore reserves), technological upgrade (extension into new energy materials), and environmental compliance—will dominate the market. Meanwhile, integration between phosphorus chemicals and new energy will deepen further. The share of new energy material capacity, such as iron phosphate and LFP, is expected to increase from the current 15% to 25% by 2026, becoming a new engine for industry growth.

SMM believes that the recent intensive production cuts and shutdowns by phosphorus chemical enterprises in Hubei have directly triggered tight supply of key raw materials such as industrial-grade MAP and purified wet-process phosphoric acid. In the short term, this may drive up raw material prices, thereby directly increasing the production costs of the iron phosphate-LFP industry chain. Currently, the iron phosphate-LFP industry is already mired in prolonged losses and is at a critical period of striving to turn losses into profits. Rising raw material costs undoubtedly add significant uncertainty to the industry's recovery. However, against the broader trend of continuously expanding downstream demand and the vigorous development of the new energy industry, the core objective for the iron phosphate-LFP industry to achieve profitability by 2026 remains unchanged.

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