Supply Chain

China’s LFP Cathode Producers Still Face Poor Margins amid Overcapacity Compared to battery and lithium producers, whose margins are widely dispersed, almost all LFP producers are struggling to break even, even including the leading producers with technological advantages that are operating at high utilisation. Amid rapid demand growth, LFP capacity expansions in China resumed from 2024 H2, led by Tier-1 producers and industry giants from the chemicals and mining sectors. These players aim to capture the market growth and can tolerate lower profitability. LFP producers are now responding to China’s anti-involution campaign and attempting to take matters in their own hands. An industry association has launched a LFP cost index and urged companies to raise offers above this level. Leading producers have called for price increases for 2026 contracts. However, ultimately the impact hinges on negotiations with battery customers, who still hold strong bargaining power. Amid the lithium price rally in Q4 2025, leading LFP producers have suspended several production lines, putting pressure on battery customers that refuse to accept CAM prices linked with lithium prices. Meanwhile, although most ternary (NMC/A) cathode producers are also operating at low utilisation rates as demand continues to undershoot expectations, profitability remains generally higher than that of LFP producers since ternary batteries are mainly used in high-end vehicles. With demand stagnant from 2023, ternary producers have already cancelled their planned projects and shifted to LFP production.

Source: Content & analysis provided by CRU Group (Distinguished Partner). For more information, visit crugroup.com.

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