Will the price of lithium iron phosphate materials continue to rise?

On August 1st, Hunan Yugen sent a price adjustment notice to its downstream customers: The processing fee for the entire series of lithium iron phosphate products was raised by 2,000 yuan per ton. This was not the first round of price increase this year, but the leading enterprises once again raised the prices voluntarily, which once again caused a significant stir in the cathode material industry.

The price that was raised this time was not the price of lithium carbonate, but the processing fee. This is quite intriguing. Since mid-May this year, the price of lithium carbonate has continued to fall, while the price of lithium iron phosphate has risen contrary to expectations - this seemingly contradictory phenomenon is precisely the key entry point for understanding this round of price increase wave.

Data shows that in June 2026, the monthly average price of lithium iron phosphate was 61,113.33 yuan per ton, an increase of 19.34% compared to the beginning of the year (51,209.52 yuan per ton), and a growth of over 80% compared to the same period last year (33,802.08 yuan per ton).

"The core is still the supply-demand relationship," Zhou Bo, the deputy director of the LiFePO4 Materials Branch of the China Chemical and Physical Power Supply Industry Association, gave a direct judgment. In his opinion, the previous round of price increase was mainly due to the transmission of material costs, while this round involves both material factors and supply-demand factors.

Over the past three years, the vast majority of enterprises in the lithium iron phosphate industry have been struggling on the loss-making line, being pressured by battery factories to sell below cost; now the wind direction has reversed, the leading material factories are operating at full capacity and placing orders, while battery factories have difficulty finding sufficient high-quality and stable suppliers. The underlying logic of this price increase wave needs to be analyzed from two dimensions: cost structure and supply-demand pattern.

01

Cost pressure: Lithium carbonate is falling

Why has the cost become higher instead?

The pricing of lithium iron phosphate is usually split into two parts: the price of lithium carbonate and processing fees. As the largest cost source, the price of lithium carbonate has been continuously falling since mid-May this year: the average price of battery-grade lithium carbonate dropped to the lowest level of 136,000 yuan/ton in early August, approaching the low point at the beginning of the year, and compared to the high point of 209,000 yuan/ton in mid-May, it has dropped by over 35%.

The downward trend of lithium prices has indeed reduced some costs, but the processing fees - covering all non-lithium raw materials such as phosphate iron and ferrous sulfate, along with labor, finance and transportation costs - have been continuously rising, forming a counterbalance. In this case, Hunan Yugen's price adjustment actually targeted the processing fees.

The increase in processing fees is driven by the tightening of both the upstream phosphate and iron source chains. And tracing back to the most upstream, almost all price fluctuations point to the same thing: sulfur.

Sulfur is one of the most fundamental raw materials in the chemical chain, and nitrogen fertilizers, phosphorus fertilizers, and copper smelting all rely on it. As a by-product of oil refining for desulfurization, sulfur should have been the least noticeable part, but due to global geopolitical tensions, supply chain disruptions, and other factors, its price has risen significantly this year and has been passed down along the industrial chain.

Industry institutions estimate that for every 1,000 yuan increase in the price of sulfur per ton, the theoretical cost of lithium iron phosphate will increase by approximately 666 yuan. Based on the price increase of sulfur (年初均价 3700 多元/吨，6 月中旬冲高破万元，半年涨幅 167%) calculated in the first half， this alone brings a cost increase of approximately 5000 yuan/ton for lithium iron phosphate.

Phosphate iron is the most direct recipient of the price transmission of sulfur. Data shows that the average price of phosphate iron has risen from about 10，000 yuan/ton at the end of 2025 to 15，200 yuan/ton in July 2026， an increase of over 50%. Zhou Bo pointed out that more than half of the sulfur used in China is for phosphorus fertilizer production to ensure the supply of agricultural fertilizers， and only about 20% is supplied to the industrial sector for the production of phosphoric acid， titanium*** and other products. The priority of ensuring the supply of agricultural fertilizers cannot be shaken， which means that the supply of sulfur for industrial-grade phosphoric acid production is subject to rigid constraints at the source.

The squeeze at both ends of the supply side has further amplified the uncertainty of phosphate prices. Therefore， some lithium iron phosphate enterprises began to negotiate the "phosphate linkage" pricing mechanism with downstream suppliers from March， attempting to gradually pass on the fluctuations from the upstream.

The change in iron source is also worth noting. The by-product of titanium***， ferrous sulfate， was once a solid waste that needed to be disposed of at a cost， with almost no value or even negative value； in 2025， the market average price rose to 600-700 yuan/ton， and in 2026， driven by the demand for lithium iron phosphate， it further rose to 1100 yuan/ton. That which was given away for free and even had to be subsidized for disposal in the past is now a cost item that positive-rational enterprises must carefully calculate.

The pressure on the cost end is not a short-term fluctuation. Sulfur supply is constrained by geopolitical factors and the supply of phosphorus fertilizer， and the price elasticity of phosphate and iron sources is limited， which means that the cost curve of lithium iron phosphate enterprises will not be able to substantially fall in the next period of time.

02

Supply and demand situation: "Overcapacity" was talked about for three years

Why is there suddenly a shortage of goods?

The lithium iron phosphate industry has long been shrouded in the narrative of "overcapacity", but the real picture is far more complex than just the total quantity figure.

Industry data shows that in the first half of 2026, the capacity utilization rate of the top five enterprises in the cathode lithium iron phosphate industry has increased from 60%-65% in the same period of 2025 to 95%-100%, almost at full capacity.

This trend is still ongoing. Battery China learned from an insider that in the third quarter, battery factories' orders for mainstream enterprises of lithium iron phosphate materials increased by nearly 30%, and the production schedules of downstream battery factories and overseas increased beyond expectations.

Dechuan Nanmao stated in its performance presentation that currently, the demand from downstream battery power and energy storage is still in a high-pace growth, with sufficient orders. The company is overall in a state of full production and sales. Hunan Yuling stated in a price adjustment letter: "The company continues to operate at full capacity. The new capacity added this year cannot meet the growth demand of all customers' orders."

Not only the traditional leading manufacturers of lithium iron phosphate materials, but also the company Datang Science and Technology, which specializes in the cathode of ternary materials and takes a differentiated route of high-end high-density lithium iron phosphate, have also received strong demand for orders. Datang Science and Technology stated in the interview that currently, its third-generation and third-generation and a half products have been stably mass-produced and supplied, the shipment volume has continued to increase, the monthly shipment volume has exceeded 10,000 tons, and the verification progress of the fifth-generation ultra-high-density products is smooth, and it has completed the introduction to leading customers. In the future, it can be quickly put into production and scaled up according to customer needs.

At present, the industry presents a distinct structural differentiation: The high-end lithium iron phosphate products of leading enterprises are in short supply and have sufficient orders, but the overall capacity utilization rate of the industry remains at around 68%. It seems that the supply is abundant, but the effective supply is seriously insufficient. The core reason behind this is that the mainstream market demand has upgraded to third-generation and third-generation and a half lithium iron phosphate, and the material research and preparation have significant technical barriers. It is not simply by laying out production lines that they can smoothly achieve mass production and delivery.

Battery and energy storage leading cell enterprises have strict control standards for batch consistency, cycle life, density, and thermal stability of cathode materials. The customer admission and certification cycle is long and the threshold is high; a large number of new production capacity can only produce low-end iterative products, which are difficult to pass the qualification review of leading battery enterprises and cannot be transformed into effective market supply. Eventually, a situation of high-end scarcity and low-end idleness is created.

The coexistence of total overcapacity and structural shortage is the core supply-demand basis of this round of price increase.

Currently, the demand side of the downstream presents a situation where the three lines of "steady growth in power, explosive growth in energy storage, and significant increase in exports" are simultaneously driving. In the battery field, lithium iron phosphate has reached a high penetration rate in the domestic passenger car market, and the growth mainly comes from the increase in the overall sales of new energy vehicles, which belongs to the "replacement of existing capacity" logic; the subsequent growth focus of the power sector will fall on the expansion of commercial vehicle sales and the expansion of the overseas new energy vehicle market. What truly changes the balance of supply and demand is the explosive growth in energy storage demand.

The latest data shows that in the first half of 2026, global lithium-ion energy storage battery shipments reached 461.3 GWh, an increase of 71% compared to 269.7 GWh in the same period of 2025. The demand for lithium iron phosphate in the energy storage field is nearly 100% - under the current technical conditions, there is no route that can compete with it in terms of cost and safety.

The explosion of global energy storage demand is the result of the reshaping of the energy supply and demand pattern by geopolitical conflicts, and the European and American markets are the key forces driving the growth of China's energy storage exports. China's power grid infrastructure is complete, and the power supply is sufficient. The local energy storage demand is more dependent on large-scale base bidding; the power grid shortcomings in Europe are prominent, with a focus on distributed power generation, and the stability of community independent power grids is poor. Wind and solar power generation fluctuations are prone to cause power outages, and energy storage is a necessary supporting component. Meanwhile, the price difference between peak and off-peak electricity in Europe and the United States is significant, and the profit from peak-off-peak energy storage arbitrage is considerable. Therefore, there is sufficient motivation for project implementation.

Although Southeast Asia and Latin America also have energy shortages, their local industrial support is weak, and the implementation speed of the energy storage industry is slower than that in Europe and the United States. Europe and the United States have stronger consumption and investment motivations, and can continuously release a large number of orders. They have become the core engine driving the significant growth of China's export of lithium iron phosphate energy storage materials. Data shows that in June this year, the export scale of lithium iron phosphate in China doubled.

In the global energy storage sector, Chinese manufacturers occupy more than 90% of the market share, with a significant advantage gap. It is unlikely that overseas countries can develop alternative materials that can complete long-term safety verification in the short term. This also means that the high growth trend of the export of Chinese energy storage materials will continue.

03

How long can the price increase last?

The sustainability of the price increase depends on two variables: whether the prices of upstream materials continue to rise, and when the shortage of supply and demand will ease.

"By next year, it may still be a state of continuous shortage," Zhou Bo said. "The only two reasons for the upstream price increase are - one is that the upstream materials are increasing in price, and two is that there is bargaining power in the situation of shortage." In his view, as long as these two factors exist simultaneously, the upward trend will not reverse.

From the supply side, the lithium iron phosphate industry has suffered consecutive losses for three years, and small and medium-sized production capacity is accelerating to exit the market. The leading enterprises are no longer grabbing orders at low prices, and the bargaining power has returned to the material side. The processing fee has recovered, which has its rationality and inevitability. However, the new high-end production capacity requires time from construction and commissioning to passing the certification of downstream customers. It is difficult to be released quickly in the short term, and the structural shortage pattern will not change immediately.

From the cost side, the supply of sulfur is constrained by geopolitical factors and the supply of phosphate fertilizers, and the prices of phosphoric acid and iron sources are difficult to fall in the short term. The cost support is still solid.

From the demand side, the energy storage market is still in a high-growth channel, and the export momentum from overseas is not reduced. The demand for battery power is stable, and the pull from the downstream will not stall in the short term. From the policy side, the pre-consumption behavior before the imposition of consumption tax and the concentrated purchasing before the cancellation of export tax rebates will provide additional support for demand in the coming months.

Multiple factors combined, the high prosperity of lithium iron phosphate will continue for at least the next 1-2 years. However, the supply pressure brought by the concentrated investment in capacity in the future cannot be ignored. At present, the overall nominal production capacity of lithium iron phosphate in China has exceeded 8 million tons. By the end of this year to the first quarter of next year, about 2 million tons of new production capacity will be concentratedly released to the market. The long-term supply depends on the expansion of battery production capacity. From the current industry situation, the current price increase is not a universal increase across the industry - while the leading enterprises are operating at full capacity and selling out, a large number of small and medium-sized enterprises are still struggling on the verge of survival. On the other side of the structural shortage, the accelerated elimination of backward production capacity.

The price increase wave will eventually subside and fade away. The profound impact of this round of price increase on the lithium iron phosphate industry does not lie in the short-term price fluctuations. The essence of this round of increase is that the continuous price increase of raw materials such as sulfur and phosphoric acid drives enterprises to passively conduct cost upward adjustment; more importantly, when the current supply and demand pattern continues to reverse and the market growth rate will remain above 25% in the next two years, the lithium iron phosphate industry will enter a period of reshaping and adjustment of upstream and downstream price.