[SMM Analysis] Major Battery Cell Manufacturers’ Tenders: Will LFP Prices Keep Declining in H2?

[SMM Analysis] Tenders launched by major battery cell manufacturers. Will LFP prices continue to fall in H2?

The Future of LFP Prices: An In-Depth Analysis of Current Market Dynamics

As the battery market evolves, particularly with the growing emphasis on lithium iron phosphate (LFP) technology, stakeholders are implementing unique strategies in navigating fluctuating pricing structures. This analysis delves into the interplay between lithium carbonate prices, raw material costs, processing fees, and the implications for the LFP market in the second half of the year.

Understanding LFP Price Composition

LFP prices are significantly influenced by two main components:

1. Processing Fees: These are bundled fees that encompass not only valuation but also inherent costs associated with raw materials, such as iron phosphate.

2. Lithium Carbonate Prices: The core component often dictates the pricing fluctuations in LFP, as it forms a substantial part of the overall cost structure.

In pricing negotiations, while both processing fees and lithium carbonate prices are primary focal points, terms like payment schedules also play a role. Typically, agreed-upon processing fees remain stable for set execution periods unless there’s an unforeseen surge in raw material prices.

Recent Trends in Lithium Carbonate Prices

Since early April this year, lithium carbonate prices have seen a significant downward trend. This reduction has edged prices below what many analysts deem the "bottom-buying threshold," eliciting concern about the sustainability of LFP prices. Over the past several months, LFP pricing has mirrored this trajectory, resulting in an average decrease of over 3,000 yuan/mt. Notably, May recorded the steepest decline, with a drop of 5.3%.

Projecting LFP Price Movements for H2

Market analysts predict a generally stable yet progressively weakening approach for LFP prices in the latter half of the year. This outlook is shaped by several factors:

• Raw Material Fluctuations: Continued scrutiny of processing fee trends and overall demand will define pricing floors in the market.

• Processing Fee Dynamics: Despite previous increases driven by rising iron phosphate costs, the second quarter saw these fees stabilize. However, contrary trends were evident in the marketplace, with material producers pushing for further hikes.

• Demand Trends in Iron Phosphate: With a corresponding slowdown in demand for iron phosphate, many suppliers began offering lower prices. This shift in market dynamics has led to reduced bargaining power for material producers.

Key Insights from Recent Market Events

In June, a significant battery cell manufacturer initiated tenders for LFP materials for H2. The results indicated that suppliers quoting higher prices largely lost contracts, whereas lower-priced bids prevailed. This outcome suggests that processing fees for H2 may trend even lower as manufacturers leverage falling iron phosphate prices to reduce their overall costs.

Observations from the Tender

• Price Temptation: Tenders revealed that only a small number of suppliers successfully navigated the pricing pressures, indicating that competitiveness is ramping up among manufacturers.

• Supply Chain Dynamics: Smaller producers are aggressively cutting prices as they seek to secure orders from prominent battery manufacturers, hinting at a saturated market resulting in significant downward pressure on prices.

• Product Segmentation: A concerning trend is emerging where prices for Generation 3 products are nearing those of Generation 2, with some manufacturers struggling to stay profitable.

The Ongoing Price War

As LFP material costs persist at a low level, coupled with stagnant lithium carbonate prices, a price war appears inevitable. The lack of an increase in end-use demand for LFP further complicates market dynamics. Current projections suggest monthly production growth rates remain modest, around 5%, suggesting no immediate scenario for regeneration in market demand.

Conclusion: Strategic Implications for the LFP Market

Looking ahead, the pressure on LFP prices seems poised to continue through H2. The intensified competition and reduced margins could pose significant risks for manufacturers lacking robust financial backing. In the face of such challenges, the industry must adapt to sustain operations and optimize supply chains effectively. As the market navigates potential weaknesses, proactive strategies from stakeholders will be critical in mitigating risks and capitalizing on any emerging opportunities.

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