The wave of expansion in lithium iron phosphate production is surging. How to resolve the structural contradictions between supply and demand?

Ask AI · How will low-end capacity achieve orderly liquidation amid intensifying industry competition?

A reporter from Economic and Trade News, Chen Jiayun, Beijing

The investment boom in lithium iron phosphate is heating up again.

On April 3, Yixing Group (600141.SH) released an announcement stating that its wholly owned subsidiary’s wholly owned subsidiary, Inner Mongolia Yixing Technology Co., Ltd. (hereinafter referred to as “Inner Mongolia Yixing”), plans to invest RMB 1.381 billion to build a 100,000-ton-per-year battery-grade lithium iron phosphate project, in order to further improve its industrial layout in the new energy materials sector. Meanwhile, companies such as Wanhua Chemical (600309.SH), Fulin Precision (300432.SZ), and Longpan Technology (603906.SH) have also expanded lithium iron phosphate capacity.

Guo Kai, a researcher at Zhongyan Purui, said in an interview with a reporter from China Business News that the current round of concentrated capacity expansion in the lithium iron phosphate industry is the result of multiple factors working together, including demand, industrial structure, and corporate strategy. On the one hand, downstream demand is growing rigidly; in the power battery field, lithium iron phosphate has a relatively high penetration rate and a stable “base,” while energy storage has become the largest incremental driver, with broad long-term demand potential. On the other hand, after the industry clears capacity, profitability rebounds; technology is mature with no risk of disruptive replacement, and uncertainty around expansion has been significantly reduced.

RMB 1.381 billion invested to build a new project

The lithium iron phosphate project disclosed in this announcement by Yixing Group is located at Uda Industrial Park in the Wuhai Economic Development Zone, Inner Mongolia. The total land area is about 76,300 square meters, the construction period is 6 months, and the funding sources are self-owned funds and bank loans.

The announcement shows that the project plans to invest RMB 1.381 billion and will include production units for 100,000 tons per year of battery-grade lithium iron phosphate, as well as supporting auxiliary facilities such as raw-material warehousing, finished-goods warehousing, and public utilities.

Regarding this investment, Yixing Group said that implementing the project will help further optimize the layout of the new energy industry, enrich its product matrix, improve the upstream-and-downstream integrated industrial chain of new energy materials, enhance the company’s market influence and overall competitiveness in the new energy sector, and accelerate its transformation and upgrading toward high-end new energy materials.

As a leading enterprise in China’s phosphate chemical industry, Yixing Group has abundant reserves of phosphate rock. Based on the advantage of raw-material supply assurance, in recent years the company has continued to deploy around the industrial chain of new energy materials, further extending its industrial chain.

At present, Yixing Group has formed lithium iron phosphate capacity of 80,000 tons per year, lithium iron capacity of 100,000 tons per year, and lithium dihydrogen phosphate capacity of 100,000 tons per year.

Yixing Group said that its average monthly shipments of third-generation lithium iron phosphate products are 7,000 tons, and for its fourth-generation products, the average monthly orders on hand exceed 10,000 tons. The 80,000-ton-per-year lithium iron phosphate capacity at its Yichang New Energy base is fully saturated and cannot meet downstream customer demand. At the same time, pilot production of fourth-generation lithium iron phosphate has been completed and the conditions for production-line commissioning are in place. Although the process for scaling up fifth-generation products has been preliminarily completed, the existing bases have no spare production lines to conduct large-scale validation of fourth-generation and above specifications. Therefore, building new capacity is necessary.

Guo Kai said that after Yixing Group’s 100,000-ton battery-grade lithium iron phosphate project is put into operation, it will achieve integrated production from lithium iron phosphate to lithium iron phosphate, further strengthening its industrial-chain advantage in new energy materials, lowering upstream-and-downstream supply-chain costs, and improving overall profitability.

The expansion boom keeps intensifying

Besides Yixing Group, in recent times multiple companies have frequently disclosed construction plans for lithium iron phosphate projects, and the industry’s expansion wave continues to heat up.

Among them, Wanhua Chemical’s deployment in lithium iron phosphate is particularly evident. As of now, the company has put into operation lithium iron phosphate capacity of 2.7 million tons per year. In addition, environmental impact approvals for its projects have been granted: in Laizhou, a project with an annual capacity of 6.5 million tons, and in Haian Yang green power industrial park, the second phase with 2.0 million tons per year and the third phase with 2.0 million tons per year—together the lithium iron phosphate projects have all received approval. The total planned capacity exceeds 13 million tons per year. After these projects are completed, the company will enter the first-tier global lineup of lithium iron phosphate production capacity.

Fulin Precision focuses on lithium iron phosphate for energy storage. Its subsidiary Jiangxi Shenghua plans to invest RMB 6.0 billion in Ordos, Inner Mongolia, to build a 500,000-ton-per-year high-end energy-storage lithium iron phosphate project. At the same time, Fulin Precision also plans to further add relevant capacity through capital raised via additional share issuance, and to develop high-end lithium iron phosphate products with high voltage and high density.

Longpan Technology and other specialized lithium battery material enterprises such as Hunan Youneng are also continuously expanding production. Recently, Longpan Technology planned to raise capital via additional share issuance of no more than RMB 2.0 billion, to invest in high-performance phosphate-type cathode material projects totaling 195,000 tons across Shandong and Hubei, with a focus on fourth-generation ultra-high energy density lithium iron phosphate. Hunan Youneng plans to raise funds to invest in lithium manganese iron phosphate and ultra-long-cycle lithium iron phosphate projects, focusing on high-end lithium iron phosphate and modified materials.

Guo Kai said that the current round of concentrated capacity expansion in the lithium iron phosphate industry is the result of multiple factors acting together, including demand, industrial structure, and corporate strategy. On the one hand, downstream demand is growing rigidly and strongly: in the power battery sector, lithium iron phosphate maintains a high penetration rate thanks to its cost and safety advantages, and the base remains stable; the energy storage track has become the main incremental driver, and under the accelerated global energy transition, long-term demand potential continues to expand. On the other hand, after the industry goes through earlier capacity clearing, profitability gradually recovers, the technology route is mature and there is no risk of disruptive replacement, and uncertainty about expansion has significantly decreased.

A person from Longpan Technology told reporters that since December 2025, the company has released multiple expansion-related announcements, forming a “new build + expansion” two-track layout. Among them, the Changzhou, Jiangsu project is entirely new capacity construction, while the expansion projects in Shandong, Hubei, and Sichuan are capacity upgrades and scale expansions based on existing plants.

“The primary reason is sustained high-speed growth in downstream demand.” A person from Longpan Technology cited industry data, saying that statistics from relevant organizations show that lithium iron phosphate shipments in 2025 reached 39 million tons, and that 2026 demand has an optimistic forecast of nearly 60 million tons. It is expected that the industry’s overall growth rate will remain at a high level of 40%—50%. In contrast, the company’s existing capacity cannot match the industry’s growth pace.

Intensifying industry competition

Compared with specialized lithium battery materials companies, phosphate chemical companies such as Yixing Group that develop lithium iron phosphate projects have certain resource and cost advantages. Among lithium iron phosphate’s core raw materials, the proportion of phosphate source is relatively large. Traditional phosphate chemical enterprises have their own phosphate rock resources, enabling phosphate source self-sufficiency, and they also have mature chemical production processes and advantages from industrial-park supporting facilities, which can effectively reduce raw-material procurement and production-operating costs.

A person from Yixing Group, in an interview with reporters, said that relying on a complete phosphate chemical industrial chain, the company achieves integrated production from phosphate rock mining, phosphate iron, to lithium iron phosphate. Compared with companies that purchase phosphate sources externally, the cost advantage is relatively clear. At the same time, the Inner Mongolia Yixing project mentioned above is located in an area with advantages such as low energy prices, which can further compress production costs. In terms of cost-effectiveness, the products have stronger market competitiveness, enabling them to better meet the needs of downstream power battery and energy storage companies.

However, in the context of rapid industry capacity expansion, the supply-demand landscape of the lithium iron phosphate market is changing, and the risk of excess in low-end capacity is gradually emerging.

Guo Kai believes that the industry has entered a stage of structural divergence characterized by loose overall total volume and tight balance of high-end effective capacity. Over the next 1—2 years, as integrated capacity of leading companies is concentrated and comes online, the industry’s overall supply growth rate will continue to run faster than the growth rates of power batteries and energy storage, and the oversupply situation will further intensify; meanwhile, capacity that has passed certification by major customers and meets high-end standards will still maintain a tight balance.

This kind of structural divergence is not a short-term cyclical phenomenon, but a long-term trend after industry maturity. It is expected to continue for 3—5 years, mainly due to three major barriers: supply-chain certification, integrated costs, and demand upgrades. Low-end capacity will be difficult to break through. At present, low-end capacity has entered an accelerated clearing stage; the next 1—2 years will be a critical clearing window. Within 3 years, deep clearing is expected to be completed, and industry concentration will continue to shift toward leading companies.

Guo Kai said that this round of large-scale expansion will not trigger a full-blown, malignant “price war,” but it is likely to result in structural price games, and industry profit differentiation will become even more pronounced. Leading integrated companies, backed by whole-industry-chain cost advantages and high-end capacity barriers, lack motivation for low-price competition. Price pressure will mainly concentrate in the low-end segment. Small and medium-sized capacities that lack resources and customer certifications will face price shocks and profit squeeze, and may even fall below the cash cost line, thereby accelerating clearing.

In its announcement, Yixing Group also highlighted related risks, stating that during the implementation of the above lithium iron phosphate projects, factors such as national policies, laws and regulations, the industry’s macro environment, and changes in market supply and demand may affect the project. Meanwhile, given that competition in the lithium iron phosphate market is currently intense, there may be further intensification of industry competition in the future, leading to product price declines and causing the risk that the project’s economic benefits after completion and commissioning will not meet expectations.

(Editor: Dong Shuguang; Reviewer: Wu Kezhong; Proofreader: Zhai Jun)