Analysis of the Impact of High Upstream Lithium Carbonate Prices and Blocked Downstream Cost Transmission on the Lithium Iron Phosphate Industry

Based on the data and industry information I have collected, I will systematically analyze the impact of high upstream lithium carbonate prices and blocked downstream cost transmission on the lithium iron phosphate industry.

Currently, the lithium iron phosphate (LFP) industry is facing severe operational pressure. According to industry information, several leading manufacturers including Hunan Yuneng, Wanrun New Energy, Defang Nano, and Anda Technology have announced production suspension for maintenance [1]. Industry association insiders believe this is a choice made by manufacturers under “no other options”, reflecting the huge operational pressure on the industry [1].

According to relevant data, lithium carbonate prices showed a significant upward trend from the end of 2024 to the beginning of 2025 [2]. This price increase is mainly driven by the following factors:

• Supply-side tightening
  : Tightening of lithium supply in China has pushed up prices [2]
• Demand-side support
  : Demand for power batteries and energy storage batteries remains growing, especially the rapid expansion of the energy storage sector [3]
• Raw material cost transmission
  : Prices of electrolytes and related raw materials such as lithium hexafluorophosphate (LiPF6) and vinylene carbonate (VC) soared by more than 230% and 260% respectively from July to November [3]

Lithium carbonate is the core raw material for lithium iron phosphate production, accounting for a high proportion of costs. The rise in lithium carbonate prices directly leads to:

• Significant increase in unit production cost
  : Higher proportion of raw material costs squeezes gross profit margins
• Inventory impairment risk
  : Raw materials purchased at high prices will face inventory write-down losses if downstream prices fall
• Cash flow pressure
  : More working capital is needed to support raw material procurement

Despite the rise in raw material costs, the price trend of power cells is relatively moderate [3]:

• Lithium iron phosphate battery price
  : The price of prismatic iron phosphate remained at RMB 0.34 yuan/Wh in November, the same as in October [3]
• Ternary battery price increase
  : Prismatic ternary was 0.48 yuan/Wh, up 6.7% month-on-month [3]

This reflects the difficulty for lithium iron phosphate battery manufacturers to transmit costs downstream.

1. Overcapacity
   : Overcapacity in Chinese manufacturing leads to fierce market competition [4]
2. Strong downstream bargaining power
   : New energy vehicle companies face price war pressure and are sensitive to upstream material prices
3. Technological homogenization
   : Lithium iron phosphate technology is relatively mature, with limited product differentiation and fierce price competition

Under the dual squeeze of rising upstream costs and limited downstream price transmission:

• Gross margin compression
  : Cost increases cannot be fully passed on to downstream, leading to lower gross margins
• Higher fixed cost ratio
  : Fixed costs continue to occur during production suspension and maintenance, further worsening the unit cost structure
• Weakened scale effect
  : Lower capacity utilization leads to higher unit fixed costs

According to industry information, leading enterprises choose to suspend production for maintenance instead of continuing to produce at a loss [1]. The considerations for this strategy include:

• Reduce cash loss
  : Avoid further expanding losses during the low-price period
• Maintain price system
  : Alleviate supply-demand imbalance through production cuts and stabilize price expectations
• Wait for market recovery
  : It is expected that demand for power and energy storage batteries will be relatively optimistic in 2026 [3]

The current dilemma will accelerate capacity clearing in the industry:

• Exit of small and medium-sized enterprises
  : Small and medium-sized enterprises with weak capital strength and poor cost control face the risk of being cleared out
• Integration of leading enterprises
  : Industry concentration is expected to increase, and enterprises with technological, cost, and capital advantages will benefit
• Differentiation in capacity utilization
  : Leading enterprises take the initiative to reduce production, while small and medium-sized enterprises exit passively; overall capacity utilization will experience a process of first decline then rise

• Accelerated capacity clearing, the industry goes through a painful period
• Leading enterprises stabilize price expectations by cutting production to ease supply-demand imbalance
• Some high-cost capacity exits permanently

• Significant increase in industry concentration
• Improvement in supply-demand pattern, recovery of profitability for leading enterprises
• Accelerated technological upgrading, promoting product differentiation competition

According to TrendForce’s forecast, demand for power and energy storage batteries will be relatively optimistic in 2026, and major battery material suppliers have announced price adjustments; new orders implemented in 2026 are very likely to increase in price [3]. This indicates:

• 2025 is the industry bottom
  : The current dilemma is a cyclical low
• Inflection point expected in 2026
  : Recovery of demand and improvement in supply-demand will bring an inflection point
• Long-term growth logic remains unchanged
  : Penetration rate of new energy vehicles and energy storage continues to rise

For industry participants and investors:

1. Short-term prudence
   : The industry will still face pressure in the first half of 2025; focus on enterprises with stable cash flow
2. Medium to long-term optimism
   : Optimistic about the long-term competitiveness of leading enterprises and profit improvement after industry integration
3. Focus on cost advantages
   : Enterprises with integrated layout, leading technology, and strong cost control capabilities will survive the cycle

[1] Search Results - Production Suspension and Maintenance Announcements of Lithium Iron Phosphate Enterprises such as Hunan Yuneng, Wanrun New Energy, Defang Nano
[2] Yahoo Finance - Analysis of Sigma Lithium’s Stock Price Rise Driven by Tight Supply in China
[3] TrendForce Lithium Battery Industry Chain Price Monthly Report - Rebound of China’s Power Cell Prices and Forecast for 2026
[4] BloombergNEF - Analysis Report on Global Battery Prices Expected to Decline Again in 2026