China's top LFP maker pushes $299M capacity expansion despite price slump

China's top lithium iron phosphate cathode producer, Hunan Yuneng New Energy Battery Material, is pressing ahead with a 2 billion yuan ($299 million) capacity expansion in Hunan province amid a sharp fall in LFP cathode prices and thin processing margins that analysts say could trigger oversupply across the global battery materials supply chain.

The project will be built in Hunan province and will have a planned construction period of 12 months, according to a company exchange filing released on Oct. 20. The company did not disclose the project's planned LFP production capacity.

Hunan Yuneng said the expansion was intended to increase supplies of its core products to meet future demand from new energy vehicles, energy storage and emerging applications.

The investment adds to a series of aggressive capacity-expansion plans announced by Hunan Yuneng in recent months, both in China and overseas.

In September, the company increased the planned capacity of its cathode active material project in Spain to 70,000 metric tons/year from 50,000 mt/y as overseas demand expanded. Planned investment in the project was raised to around 1.65 billion yuan from 982 million yuan, according to a Sept. 23 company filing.

In July, Hunan Yuneng unveiled an even larger investment plan involving around 24 billion yuan for an integrated battery materials and recycling complex in Guizhou province. The project is planned to include 800,000 mt/y of LFP capacity and 1 million mt/y of iron phosphate capacity, as well as upstream phosphate and iron resources, lithium carbonate processing and battery recycling facilities.

Cathode active material prices

The continued expansion comes against a challenging pricing environment for China's LFP cathode material producers.

Platts, part of S&P Global Energy, assessed ex-works China calculated LFP cathode active material at $5,542/mt on Oct. 20, having fallen 15.5% from a month earlier, driven by falling lithium chemical prices.

Lower raw material prices, particularly lithium, have pressured LFP CAM prices, while competition among Chinese producers has kept industry processing margins thin.

China currently accounts for around 98% of global LFP battery production and continues to lead additions of new LFP manufacturing capacity, despite increasing competition outside the country, according to an S&P Global Energy CERA report released in October.

However, continued capacity additions increase the risk of oversupply. LFP producers are also expected to face margin pressure as raw material prices decline, particularly lithium, creating a volatile environment in which some announced projects could ultimately be delayed or canceled, CERA analysts said in the report.

Hunan Yuneng itself acknowledged market risks in its latest filing. If future demand falls below expectations or raw material and product prices experience significant adverse changes, the additional capacity from the Xiangtan project could be difficult to absorb and the project's economics could be affected, the company said.

The company also built flexibility into its much larger Guizhou expansion. Hunan Yuneng said the five-year project would be implemented in stages and that the pace of later investment would be adjusted according to future market demand.

Still, robust downstream demand and high utilization rates have supported Hunan Yuneng's expansion strategy. The company said in July that its existing capacity continued to operate at high utilization rates, prompting it to expand capacity proactively to meet growing demand.