Since July, demand across the LFP industry chain has continued to rise, but the supply-side response has lagged. The most notable feature of the current market is that tight supply is rapidly transmitting from downstream to upstream, forming a cascading inversion of “battery cell production schedules > LFP cathode production schedules > iron phosphate production schedules”, where slow LFP capacity release and iron phosphate nearing full production have become the most prominent bottlenecks for the entire chain.
I. LFP Cathode: Robust Demand Encounters Capacity Ceiling
In July, LFP cathode production reached 538,000 mt, up 7% MoM, basically flat with the previous month’s expectations. Demand growth mainly came from two sources: power battery orders driven by accelerating commercial vehicle electrification, and stable, continuous releases from the ESS sector.
Entering August, production schedules from cathode plants total approximately 565,000 mt, up 5.1% MoM, with the growth rate slowing compared to July. The core logic behind the slowdown is not weakening demand, but rather that effective capacity has hit its ceiling. Leading cathode plants generally report that currently received orders far exceed their actual delivery capacity, with enterprises mostly in a passive destocking state and inventory available for sale continuously being compressed.Meanwhile, new production lines are in the early stages of equipment commissioning and ramp-up after commissioning, with the pace of release far slower than planned expectations, making it difficult to form effective replenishment in the short term. It can be said that the constrained growth in August is essentially due to “insufficient capacity, rather than insufficient orders.”
Operating rate data intuitively confirms this judgment. The overall operating rate for the LFP industry reached 78% in July and is expected to rise to 80% in August. It is important to note that there is a considerable amount of tail-end capacity in the industry. These production lines struggle to secure downstream bulk orders due to insufficient technical capabilities, poor product consistency, or lack of client certification, and in fact remain idle or operate inefficiently for a long time. Therefore, after eliminating these ineffective capacities, the 80% operating rate already corresponds exactly to a state of full production for deliverable effective capacity. High-quality production lines are almost all operating at full capacity, and marginal new supply is extremely limited. The supply rigidity of the LFP cathode is now clear.
II. Upstream Iron Phosphate: Gap Widens, Becoming the Key Bottleneck Constraining the Entire Chain
The crux of the issue is that the tight landscape is not limited to the LFP cathode but is further spreading to upstream iron phosphate.
In July, LFP cathode production schedules increased by about 7% MoM, and in August, they are increasing by about 5% MoM, but upstream iron phosphate material only increased by about 3.6% MoM and 3% MoM, respectively. The mismatch in supply-demand growth rates directly leads to some LFP cathode plants limiting their production schedules due to the inability to purchase sufficient iron phosphate. Some enterprises are even diverting orders to other process routes or to other cathode plants with surplus iron phosphate supply. This means that the effective supply of iron phosphate has a certain impact on LFP cathode shipments.
This supply-demand gap ultimately manifests as an “inversion” across the entire industry chain: battery cell enterprise production schedules exceed LFP cathode production schedules, and LFP cathode production schedules in turn exceed iron phosphate production schedules, with each link in a state of tight balance or even shortage, and iron phosphate is the weakest link in this inversion chain. The iron phosphate segment also faces a predicament of slow progress in new capacity construction and insufficient effective capacity, and amid persistent inflows of LFP demand, the supply gap continues to widen.
III. Outlook: Peak Season Growth Is Certain, Supply Constraints Difficult to Fundamentally Alleviate
Looking ahead, LFP cathode production schedules are still expected to see about a 5% MoM growth in August. The market will enter the traditional “September-October peak season” for auto sales, providing certain support for power demand, while some new capacities are expected to come online and start ramping up production. However, due to the objective cycle from commissioning to stable mass production for new lines, actual output in September will still be constrained by the capacity ramp-up pace, and supply elasticity is extremely low. Order demand as reported by enterprises remains very robust, and the undersupply situation is highly likely to continue.
Against the backdrop of unresolved supply constraints and continued demand rise, industry chain profits will continue to concentrate in upstream tight segments.Whether iron phosphate supply can be released as scheduled will become the core variable determining the upper limit of LFP cathode production and the direction of processing fees in Q3 and Q4. Meanwhile, there is a need to continuously monitor lithium carbonate price fluctuations and procurement strategy adjustments by downstream leading battery plants. These factors will further influence market pace against the tight supply-demand backdrop.
SMM New Energy Research Team
Wang Cong 021-51666838
Feng Disheng 021-51666714
Yang Chaoxing 021-20707860
Wang Zihan 021-51666914
Wang Jie 021-51595902
Chen Bolin 021-51666836
Wang Yizhou 021-51595909
Xu Mengqi 021-20707868
Hu Xuejie 021-20707858
Lin Ziya 021-51666902
Yang Le 021-51595898
Li Yisha 021-51666730
Wang Zhaoyu 021-51666827
Xiao Wenhao 021-51666872
Zhang Jing 021-51666878
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