[SMM Analysis] Countdown to Rebate Cancellation, "Pre-Rebate" Export Rush Begins — Who Will Emerge Victorious?

Recently, the Ministry of Finance and the State Taxation Administration jointly issued an announcement regarding the adjustment of export tax rebate policies for photovoltaic and other products. It specifies that, effective April 1, 2026, the VAT export rebate will be canceled for certain products, including some lithium battery materials. Key products in the ternary materials sector affected include mainstream ternary precursor products such as lithium nickel cobalt manganese oxide (HS code 2842903) and lithium nickel cobalt aluminum oxide (2842906), as well as mainstream ternary cathode materials like nickel cobalt manganese hydroxide (28539030) and nickel cobalt aluminum hydroxide (28539050).

Currently, the export of ternary precursors and ternary cathode materials enjoys a 13% VAT export rebate. If this policy is fully canceled, it will significantly impact the short-term profitability of related companies' export orders. Even if current export orders can command higher premium processing fees or more favorable metal payables, companies will face substantial pressure to maintain profitability without policy support.

At this stage, the industry has already formulated a clear response strategy. Manufacturers of ternary precursors and cathode materials primarily serving overseas markets are actively adjusting their production schedules. A noticeable surge in concentrated "pre-rebate" exports is anticipated in the first quarter. Due to the recent policy announcement, some companies are still in the process of negotiating specific implementation details with downstream customers. Downstream clients need to reassess their future order volumes and decide whether to continue sourcing materials from China, shift to other regional suppliers, or opt for localized production. If cooperation with Chinese suppliers continues, both parties must renegotiate profit-sharing arrangements and price settlement terms. Although the exact scale of future orders remains undetermined, we can make preliminary judgments on the order trend from the following perspectives:

Ternary Cathode Precursors:

• Chinese companies maintain a significant technological lead globally, and overseas markets are still expected to rely primarily on imports from China. In 2025, South Korea imported approximately 92,600 tons of ternary precursors from China, accounting for nearly 90% of China's total exports of this product. Overseas cathode material producers, especially in South Korea, choose Chinese precursors not only for cost-effectiveness but also due to the comprehensive competitiveness of Chinese companies in terms of technical expertise, quality consistency, and reliable supply scale. According to SMM data, South Korea's domestic ternary precursor capacity was about 153,000 tons in 2025, theoretically sufficient to meet demand. However, the domestic operating rate has remained consistently low, and import dependency is still high. This reflects the competitiveness of Chinese manufacturers not only in raw material cost control but also in their technical support and product consistency.

• Indonesia is poised to become a reliable backup for capacity and supply. In 2025, China's ternary precursor export orders were largely concentrated among leading companies like CNGR, Huayou, and GEM. All three have established production bases in Indonesia. Huayou and GEM have each built 50,000 tons of precursor capacity, and CNGR's 20,000-ton ternary precursor project in South Kalimantan commenced operation on January 13 this year. Indonesian bases offer multiple advantages: First, they can leverage local abundant nickel resources and by-products like cobalt sulfate and manganese sulfate from MHP, creating a raw material cost advantage. Second, they can utilize the mature production experience and technical systems of Chinese enterprises. Third, Indonesia exempts exported goods from VAT; after the April 1st rebate cancellation in China, its price competitiveness will become more pronounced. Fourth, against a backdrop of frequent changes in international trade and tariff policies, establishing overseas plants helps companies mitigate risks related to policy fluctuations. Overall, although the current operating rate of local precursor capacity in Indonesia is limited, transferring some future orders to Indonesian plants is a viable strategy for companies to adapt to policy changes.

Ternary Cathode Materials:

• The growth momentum of overseas battery cell manufacturers is relatively weak, limiting the overall incremental boost from the "pre-rebate" export rush. The overseas market for ternary cathode materials is mainly concentrated in the US and Europe. Since the implementation of the One Big Beautiful Bill Act (OBBBA), the sales performance of the US electric vehicle market has been significantly impacted. Late last year, several US automakers and battery companies suspended or canceled collaborations with Korean battery cell manufacturers. Future growth in the US new energy market may rely more on LFP materials and the energy storage sector, with the outlook for incremental demand for ternary materials appearing less optimistic. In contrast, the European market has recently shown some positive signals, such as the European Commission issuing its "Guidance on Undertakings in the Anti-subsidy Investigation Concerning Imports of Battery Electric Vehicles from China" and the German government reinstating EV purchase subsidies. These measures are expected to help restore market confidence in the short term. However, the influence of Europe's traditional automotive brands remains significant, with some carmakers expressing conservative views on the pace of electrification. Coupled with slow economic growth, consumer purchasing behavior heavily reliant on subsidies, and the accelerated entry of Chinese battery and vehicle manufacturers into the European market, Japanese and Korean battery cell makers also face increasingly fierce competition there.

• Overseas expansion of cathode material capacity is an industry trend and can partially absorb former export order demand. Most domestic cathode material companies with a high proportion of export business have already established or are planning overseas production bases. For instance, Bamo Technology, which led in export volume in 2025, completed its Phase I 25,000-ton ternary cathode project in Hungary in Q4 last year. Easpring's Phase I 60,000-ton base in Finland and Ronbay's Phase I 25,000-ton base in Poland are both expected to commence production in the first half of this year. Additionally, projects like BTR's Phase I 25,000-ton base in Morocco and XTC's 40,000-ton base in France are progressing. These moves indicate that leading cathode enterprises have long been establishing overseas capacity to get closer to customer markets and hedge against trade risks. The adjustment to the export rebate policy is expected to further accelerate the production ramp-up of these overseas bases.

During the early development stage of the lithium battery industry, China implemented the 13% VAT export rebate policy to encourage companies to explore international markets and enhance global competitiveness. Currently, the domestic ternary materials industry has entered a period of slower growth, facing structural adjustments and industrial realignment. Challenges such as blind price competition, long-term loss-making operations, and structural overcapacity must be addressed for the industry's healthy and sustainable development. The one-time cancellation of the export rebate policy will undoubtedly impact the profit margins of leading companies and pose challenges for small and medium-sized enterprises yet to achieve scale in overseas markets in the short term. However, in the long run, companies with genuine product competitiveness, strong technological reserves, and the agility to navigate policy and market risks will gradually emerge during industry consolidation and transformation, propelling the sector toward a more rational and healthier development stage.