CITIC Securities | Lithium Iron Phosphate Cathode Industry Deep Report: Profitability Improvement Breaks the Deadlock, Valuation Hits Bottom and Opens New Chapter

Written by Xu Lin and Zhu Yue

On the demand side, lithium iron phosphate (LFP) cathodes are the only segment in the midstream lithium battery industry enjoying excess growth in energy storage. It is expected that this year’s demand will grow over 50% year-on-year, with leading companies continuing to operate at full capacity or exceeding it. As large state-owned enterprises and central government entities enter the energy storage market, the outlook for demand is only upward (with the implementation of ground subsidies, removal of consumer hesitation, and new models unveiled at the April auto show), and production will continue to increase month by month. On the profitability side, LFP is the fastest to realize price increases and has the broadest coverage, with significant profit improvements expected from Q1 2026. LFP is currently undervalued in the lithium battery sector, and we are optimistic about valuation recovery.

Demand Side: LFP is the only segment in the lithium battery midstream with excess growth. In energy storage, with the implementation of domestic policies No. 136 and No. 114, combined with overseas AI data center storage needs, the global energy storage market is entering a demand explosion phase. Since energy storage requires long cycle life, high safety, and high economic efficiency, LFP is the basic standard. We are neutral/optimistic that by 2026, global energy storage battery demand will reach 1005/1145 GWh, up 52%/73% YoY. In terms of power batteries, domestic LFP penetration has reached 85%, and from January to November 2025, LFP batteries accounted for over 90% of new vehicle model announcements, so we expect LFP to remain the main type in 2026. In Europe, LFP penetration is still at 12.8%, which is relatively low. We expect that in 2026-2027, as Chinese automakers increase exports to Europe and more popular overseas models offer LFP options, European LFP penetration will rise to 19.5% and 31.2%, corresponding to sales of 1 million and 1.6 million vehicles. We forecast that in 2026, under neutral and optimistic scenarios, global demand for LFP cathodes will reach 5.89 and 6.26 million tons, respectively, up 48% and 57% YoY, significantly higher than the industry growth rates of 34% and 40%.

Supply Side: Although many new capacities are expected to come online in 2026, demand is sufficient to support it. We have reviewed the expansion plans of various LFP producers in the industry for 2026, which feature the following characteristics: 1) Leading companies are only expanding existing factories and have no plans to build new ones, demonstrating a strong awareness that current prices at the bottom do not require further capacity expansion to avoid intensifying industry competition; 2) Companies with battery plant stakes and cross-industry expansion plans are more aggressive, indirectly confirming that battery manufacturers also recognize the strong demand next year. We estimate effective LFP cathode capacity will reach 7.29 million tons in 2026, up 43% YoY. Under neutral/optimistic expectations, demand will be 5.895/6.255 million tons, with capacity utilization rates of 81%/86%, up 3/8 percentage points YoY, indicating an improvement in supply and demand balance.

Price and Profitability: Price increases directly boost LFP profits, while higher proportions of high-voltage dense LFP drive structural optimization. In November 2025, the LFP Association released a cost-price index, and combined with the continuous three-year loss pressure faced by LFP companies, this has driven cathode prices up by 1,000-2,000 RMB per ton, making it the fastest-growing and most widely covered segment in the midstream. Additionally, with the rapid penetration of fast-charging power batteries and large energy storage cells, demand for high-voltage dense LFP is expected to grow significantly, with a projected demand of 1.69 million tons in 2026, priced 1,000-2,000 RMB higher per ton than regular LFP, further improving profitability.

Investment Recommendations: We are optimistic that LFP companies will see significant profit improvements starting from Q1 2026, driving valuation recovery.

1. Downstream new energy vehicle sales and production may underperform expectations: Sales may fall short due to weak demand; production may be affected by large fluctuations in upstream raw material prices and power restrictions, impacting shipment volumes and profitability.

2. Raw material price volatility exceeding expectations: Since 2021, raw material prices have experienced significant fluctuations, with high and unstable prices affecting end-market demand and causing short-term disturbances to company performance.

3. Key project progress below expectations: As participants in the new energy sector, the advancement of key projects is crucial for revenue and profit support and reflects company growth. Delays in key project progress will impact both current and future performance.

Securities Research Report Title: “Profitability Improvement Breaks the Deadlock, Valuation Bottoms Out and Begins a New Chapter — In-Depth Industry Study of Lithium Iron Phosphate Cathodes”

Publication Date: March 16, 2026

Published by: CITIC Securities Co., Ltd.

Analysts:

Xu Lin SAC No.: S1440522110001

Zhu Yue SAC No.: S1440521100008