In November 2023, China’s production of lithium iron phosphate plummeted rapidly, down 10% from October, equivalent to a decrease of 6GWh of battery cells: the weak energy storage end driven by the power end did not show signs of improvement, and the “power does not move and energy storage is not stored”. Downstream demand is lower than expected, with a significant reduction in mid month purchase orders, which has dampened the production enthusiasm of lithium iron phosphate enterprises; Fast product iteration and upgrading, high frequency of production line rectification, and a decrease in product yield.
In terms of output
In November 2023, China’s production of lithium iron phosphate was 114000 tons, a decrease of 10% month on month and 5% year-on-year, with a cumulative year-on-year increase of 34%.
Figure 1: Production of lithium iron phosphate in China
Figure 1: Production of lithium iron phosphate in China
In Q4 2023, the price of lithium carbonate, the main raw material, will decline. Downstream battery cell companies will mainly focus on destocking, reducing the inventory backlog of raw materials and products, and suppressing the demand for lithium iron phosphate. In terms of cost, the decrease in main raw material prices in November has driven down the manufacturing cost of iron lithium materials. On the supply side, in November, iron and lithium enterprises continued to prioritize sales and reduce finished product inventory, resulting in a significant decrease in the total supply in the market. On the demand side, as the end of the year approaches, power and energy storage battery cell companies mainly focus on clearing finished product inventory and maintaining essential procurement, resulting in limited demand for lithium iron phosphate materials. From December 2023 to Q1 2024, the traditional off-season bearish situation in the market remained strong, and demand for lithium iron phosphate narrowed. Most lithium iron phosphate enterprises are starting to reduce production and will see a significant decline in production.
It is expected that the production of lithium iron phosphate in China will be 91050 tons in December 2023, with a month on month and a year-on-year change of -20% and -10%, respectively. This is the first time since May 2023 that monthly production will fall below the 100000 ton mark.
In terms of production capacity
As of the end of 2023, the domestic production capacity of lithium iron phosphate is over 4 million tons.
The production capacity layout of lithium iron phosphate is dominated by luxury investment from giants, frequent cross bank consumption with card swiping, joint efforts from government, enterprises, and finance, and competition from various regions to achieve a certain speed. Lithium iron phosphate projects are blooming everywhere, colorful, and the results are uneven. Despite the current surplus situation, there are still companies with the ambition of pacifying the world and preparing to invest in the lithium iron phosphate industry.
Figure 2: China’s production capacity of lithium iron phosphate in 2023 (by region)
Figure 2: China’s production capacity of lithium iron phosphate in 2023 (by region)
Giant enterprises such as Hunan Yuneng, Defang Nano, Wanrun New Energy, Changzhou Lithium Source, Rongtong High tech, Youshan Technology, etc. account for more than half of the production capacity, combined with wealthy enterprises such as Guoxuan High tech, Anda Technology, Taifeng Pioneer, Fulin (Shenghua), Fengyuan Lithium Energy, Terui Battery, etc., with a total production capacity of 3 million tons. It is expected that 60-70% of the production capacity will be released in 2024 to meet the domestic demand for lithium iron phosphate that year, while it is difficult for the export side to have a significant increase in volume in the short term. In terms of supply and demand, leading enterprises are mainly linked to leading enterprises, and second – and third tier enterprises each show their skills. Marriage between wealthy families may not necessarily be happy.
In terms of operating rate
The operating rate continued to decline in November, breaking 50% and entering 44%.
The main reason for the decline in the operating rate of lithium iron phosphate in November is that the narrowing of market demand has led to a decrease in enterprise orders and a decline in production; In addition, the newly invested production capacity will be released before the end of the year. During a downturn in the market, many enterprises are adjusting their production lines to plan for the overall situation in 2024.
Figure 3: Production and operating rates of lithium iron phosphate in China
Figure 3: Production and operating rates of lithium iron phosphate in China
The expected operating rate in December has dropped to a historic low, with the release of production capacity and a simultaneous decline in production, resulting in an operating rate of less than 30%.
epilogue
Overcapacity has become a foregone conclusion, and the security of the capital chain has become the top priority. The main goal for 2024 is to struggle to survive!
The downstream demand for lithium iron phosphate is not strong, and the downstream stocking willingness is weak from Q4 2023 to Q1 2024, resulting in the continued low production of lithium iron phosphate. The overcapacity of the raw material end has further narrowed the demand window, leading to lithium iron phosphate enterprises to “slim down” and squeeze through the window by lowering prices: they enter the market after breaking through barriers and entering the battle. This situation inevitably reminds people of a movie called “Letter of Commitment”, and it was not easy for the company to survive. Reducing production and lowering prices in Q4 2023 is an inevitable measure in the short term. Recently, several companies have suspended production and maintenance of multiple production lines.
A sluggish market is not the worst outcome, and the power and energy storage markets are still promising. But next, companies need to be vigilant about potential risks: a crisis in the funding chain! Some companies find it very difficult to collect accounts receivable. It’s not easy for the company to prepare next year’s big meal as they haven’t had enough to eat this year. If selling at a lower price can attract high-quality customers, it is an acceptable choice; But if preferential marketing methods such as price reduction and interest reduction, and extended payment terms are applied to enterprises with higher financial risks, it will bring greater losses, undoubtedly adding insult to injury to enterprises in this market downturn. And with discounted shipments, there is not much market capacity to accommodate them in recent months. Lithium iron phosphate enterprises should avoid the so-called “investment status” style vertical and horizontal alliances, accelerate capital recovery, reduce operating costs, and smoothly survive the winter; Those who are watching at the door should enter with caution.
Post time: Mar-18-2024