From December 25 to 26, four lithium iron phosphate producers—Hunan Yuning, Wanrun New Energy, Defang Nano, and Andatech—successively announced maintenance-related production cuts. The shutdowns will occur in January 2026 and last for one month.

Hunan Yuneng stated that its production capacity utilization has exceeded 100% since the beginning of the year. This maintenance is expected to last one month, reducing the company's phosphate cathode material output by 15,000 to 35,000 tons. Wanrun New Energy anticipates a reduction of 5,000 to 20,000 tons in its LFP production due to maintenance, representing up to 50% of its capacity. Andatech also noted that its LFP production lines have been operating at overcapacity since the fourth quarter, with this maintenance expected to reduce output by 3,000 to 5,000 tons.

It is reported that these four companies collectively hold approximately 50% of the lithium iron phosphate market share. Among them, the three companies that disclosed their production reduction targets account for about 35% to 50% of the total January production cut. This short-term reduction will alter the current supply-demand dynamics in the industry. Furthermore, some non-listed lithium iron phosphate companies have also joined the production reduction plan.

Regarding the reasons for the production cuts, it is understood that the lithium iron phosphate industry is currently in negotiations with major downstream battery customers. There are two primary reasons for the reductions: first, the sharp rise in lithium carbonate prices has created significant operational pressure; second, the base price has been persistently unprofitable, with upstream phosphoric acid and iron ore prices continuing to surge. Customers are unwilling to accept price increases, making operations unsustainable.

From a supply-demand perspective, leading LFP manufacturers are operating at full capacity, and most second-tier players have also reached full production levels. However, second-tier companies remain broadly unprofitable. On the cost side, prices for lithium carbonate, phosphoric acid, monoammonium phosphate, and ferrous sulfate all increased in the fourth quarter, intensifying operational pressures rather than alleviating them. Regarding pricing, some major clients have significantly delayed their bidding and negotiation schedules. Against the backdrop of high capacity utilization rates (a metric measuring the efficiency of equipment in generating value during available time), LFP manufacturers have collectively reduced production to demonstrate a united stance, making price stabilization an inevitable trend.

Data indicates that despite markedly improving market demand and production rates returning to prosperous levels, most LFP manufacturers continue to operate at a loss. According to the China Chemical and Physical Power Source Industry Association, the average market price for LFP in November was CNY14,704.8 per ton, while industry costs ranged from CNY 16,798.2 to 17,216.3 per ton. The gap between selling prices and costs widened further in November compared to October. Third-quarter financial reports indicate that most LFP manufacturers are operating at a loss.

However, downstream battery manufacturers have yet to respond to the price hikes, though they may find it difficult to accept a corresponding 50% production cut. The situation could also reverse.

Looking ahead to 2026, domestic demand for new energy lithium batteries will see a significant quarter-on-quarter decline at the beginning of the year compared to the fourth quarter. Battery manufacturers are expected to reduce production and take holidays to align with these demand fluctuations. Reasons include: First, new energy passenger vehicles will face a policy adjustment to vehicle purchase tax in early 2026, causing sales to drop by at least 30% quarter-on-quarter compared to Q4. Second, after the year-end rush for subsidies and tax exemptions, new energy commercial vehicles will inevitably experience a significant quarter-on-quarter decline in early 2026. Third, while exports of new energy passenger vehicles will remain strong in early 2026, they will not significantly boost demand for batteries from independent suppliers. Fourth, U.S. energy storage demand has shown little significant traction for domestic battery exports. Battery exports to the U.S. plummeted in 2025, and U.S. AI-driven energy storage demand has had negligible impact on domestic markets. Fifth, domestic energy storage bidding prices have fallen sharply below 300 RMB/kWh, inevitably weakening demand amid price pressures. Meanwhile, automotive batteries cannot absorb the cost losses incurred by energy storage projects.

 If you have any questions, please feel free to contact SunSirs with support@SunSirs.com.