Lithium Prices Soar, but Midstream Giants Hit "Pause"! Coincidence or Strategy?

Recently, the lithium carbonate market has presented a complex picture of "ice and fire." On one side, futures and spot prices continue their strong upward trend with high market sentiment; on the other side, major iron phosphate (LFP) cathode material manufacturers, including Hunan Yuneng, Wanrun New Energy, Defang Nano, and Anda Technology, have successively disclosed plans for maintenance and production cuts lasting one month. Why does this divergence exist where the upstream raw material sector is "hot" while the midstream materials sector is "cold"? Is the timing of these maintenance shutdowns a coincidence or a deliberate move?

 

 

 

On December 26th, lithium carbonate prices achieved a landmark breakthrough. On that day, the Guangzhou Futures Exchange lithium carbonate main contract strongly stood above the 130,000 CNY/ton mark, hitting an intraday high of 130,800 CNY/ton, a new high in nearly two years, with a cumulative increase of nearly 70% for the year. The spot market closely followed, with battery-grade lithium carbonate quotes rising in tandem and market trading remaining active.

 

The fundamental driver supporting this round of market movement lies in the explosive demand. The energy storage market has become a new growth engine. According to data from GGII, China's total energy storage lithium battery shipments are expected to exceed 580 GWh in 2025, a year-on-year increase of over 75%. Overseas, the U.S. "Big and Beautiful Act" enacted in July serves as a catalyst. To circumvent the policy impacts of "strict restrictions on Foreign Entities of Concern (FEOC)" and the "early termination of solar/wind tax credits" within the Act, relevant manufacturers are eager to commence construction within 2025 to lock in project subsidies. Meanwhile, large-scale energy storage project plans in Europe, Saudi Arabia, and other regions have led to a surge in installation demand, resulting in a situation where high-end battery cells are "hard to find." Furthermore, demand for power batteries in China remains strong. From January to November 2025, domestic NEV sales reached 12.466 million units, a year-on-year increase of 23.2%, with market penetration historically breaking the 50% mark in October and continuing to grow. Battery companies are operating at full capacity, and some automakers have even stationed personnel at battery factories to wait for goods to ensure supply.

 

However, amidst the prosperous situation of hot upstream raw materials and strong downstream battery orders, four leading LFP cathode material companies in the midstream of the industry chain have collectively reduced production. From the evening of December 25th to the 26th, four major LFP enterprises, including Hunan Yuneng, Wanrun New Energy, Defang Nano, and Anda Technology, successively released announcements regarding production cuts for maintenance. The timing is concentrated at the end of 2025 to the beginning of 2026, with a maintenance cycle of one month each. Among them, Wanrun New Energy expects to reduce LFP production by 5,000 to 20,000 tons; Hunan Yuneng expects to reduce phosphate cathode material production by 15,000 to 35,000 tons; Anda Technology expects to reduce LFP production by 3,000 to 5,000 tons; Defang Nano announced that partial equipment maintenance will commence on January 1, 2026, for approximately one month. Overall, excluding Defang Nano, the combined production reduction scale of the three enterprises ranges from 23,000 to 60,000 tons. Such a synchronized scale of production cuts has attracted significant market attention.

 

 

 

In fact, the most direct and indisputable trigger for this concentrated maintenance action is the objective need for equipment maintenance after long-term full-load production.

 

Since 2025, the explosive demand for NEVs and energy storage has driven a surge in LFP demand, keeping the capacity utilization rate of leading enterprises in a state of oversaturation. Hunan Yuneng's announcement stated that "capacity utilization has exceeded 100% since the beginning of the year," Wanrun New Energy mentioned that "the company's LFP production lines have been operating at overload since the fourth quarter," and Defang Nano and Anda Technology also face equipment maintenance pressure due to high-intensity production throughout the year. From a conventional perspective, year-end maintenance is an industry practice. Long-term full-load production accelerates the wear and tear of core equipment (such as reactors and calcination furnaces). Regular maintenance aims to provide necessary upkeep and technical transformation to avoid failure risks and ensure stable and efficient production in the coming year.

 

However, industry insiders claim that the collective maintenance by LFP manufacturers is more motivated by the pursuit of rebalancing interests within the industry chain.

 

As the core raw material for LFP, lithium carbonate prices have continued to rise since June 2025, with spot prices for battery-grade lithium carbonate rising from 60,000 CNY/ton to over 120,000 CNY/ton, directly pushing up the production costs of cathode materials. Meanwhile, LFP processing fees have long been compressed below 15,000 CNY/ton, falling short of the industry average cost line (15,700 - 16,400 CNY/ton). This scissors effect of "rising costs but stagnant processing fees" has led to widespread losses among enterprises. In the first three quarters of 2025, Defang Nano's gross profit margin was -2.13%, and Wanrun New Energy's was only 1.7%. A relevant person from a listed LFP company stated that the industry has been in consecutive losses for nearly three years.

 

On a deeper level, this reflects a mismatch between the industry's capacity cycle and the demand cycle. After the expansion wave in previous years, a large amount of production capacity has accumulated in the cathode material segment. When demand recovery first drives upstream resource prices to soar, the midstream segment, due to fierce competition and weak bargaining power, sees its overcapacity amplify cost shocks, and profits are sharply compressed in the industry chain redistribution. In a context where raw material prices continue to rise but cost pressures cannot be smoothly transmitted downstream, production essentially means losses. Therefore, taking the initiative to reduce production has become a rational choice for enterprises to cope with losses and reduce cash flow hemorrhage. The nearly synchronous maintenance by leading enterprises essentially forms industry coordination, aiming to support market prices by collectively contracting supply in the short term. Under these circumstances, reducing operating rates transforms from passive operational pressure into an active market "tactic"—its core intention is to create key space for subsequent price negotiations through phased supply contraction. As the head of an industry association put it, this is a "measure of last resort." Therefore, the concentrated maintenance by leading enterprises is also intended to strengthen bargaining chips for price increase negotiations with downstream battery cell manufacturers. It is understood that the industry has already initiated a second round of price increases, with mainstream enterprises planning to raise processing fees by 2,000 to 3,000 CNY/ton. If implemented, this will significantly improve profitability.

 

This seemingly independent "tactic" actually resonates with moves in the upstream. Recently, upstream miner Tianqi Lithium, observing a "continuous and significant deviation" between traditional quotes from platforms like SMM and spot/futures prices, which it believes poses a challenge to operations, adjusted its pricing benchmark. This reflects a scramble for dominance over a fairer pricing system. The collective production cuts by midstream enterprises are a response to upstream demands for cost transmission. Seemingly different moves by upstream and downstream ultimately converge, aiming to jointly promote the return of product prices to a level of "cost + reasonable profit."

 

 

 

Looking ahead at the subsequent trend of lithium carbonate prices, experts point out that the market will enter a new phase of complex game between bullish and bearish factors. It is expected that the price center will fluctuate at a high level, while the internal structure of the industry chain faces reshaping. Short-term prices still receive solid support from several key factors at the industrial level.

 

Cathode material factories reducing production to support prices is expected to facilitate the downward transmission of lithium price increases. SMM analysis points out that although leading LFP enterprises have initiated a second round of negotiations for price increases recently, the first round for most other material factories has not yet been finalized. Downstream battery cell factories have generally recognized the pressure brought by raw material price increases, but the actual implementation of price hikes still awaits further negotiation results. If subsequent price increases by cathode material factories are finalized, it will be more conducive to the downward transmission of lithium price increases, opening up upward space. At the same time, Tianqi Lithium's adjustment of its pricing benchmark also corroborates the strong downstream demand.

 

The industry's high prosperity continues, and lithium carbonate inventories remain low consecutively. According to survey data from Top 20 battery factories by TD Tech, China's lithium battery (energy storage + power + consumer) market production scheduling total for January 2026 is approximately 210 GWh, a month-on-month decrease of 4.5%, performing better than market expectations. According to SMM data, the total weekly inventory of lithium carbonate as of December 25, 2025, was 109,800 tons, a month-on-month decrease of 652 tons, marking the 19th consecutive week of destocking, while inventory levels hit a new low since February 20, 2025.

 

Energy storage demand is also boosting expectations, and the supply-demand pattern is expected to improve in 2026. Benefiting from declining costs, policy-driven expansion of peak-valley price spreads, and the introduction of capacity electricity prices or compensation policies in some domestic provinces, the rate of return on domestic energy storage is expected to increase, thereby driving demand. According to Xinluo Consulting statistics, global energy storage lithium battery shipments reached 620 GWh in 2025, a year-on-year increase of 77%, and are expected to reach 960 GWh in 2026, a year-on-year increase of 54.8%. From a capital expenditure perspective, capital expenditures of major global lithium mining companies have shown an inflection point decline since 2024, corresponding to a potential slowdown in supply growth from new or expanded projects in 2026 and 2027. Energy storage taking over from electric vehicles is expected to become the second growth curve for lithium demand, and the supply-demand pattern is expected to improve in 2026.

 

However, the room for further significant upward movement in prices is also subject to clear constraints. First, supply elasticity will gradually emerge. When prices stabilize at 130,000 CNY/ton and above, enthusiasm for resuming production of marginal capacity, such as mica (mica lithium extraction), which was previously suspended due to high costs, will increase, and overseas imports may also rise. Second, the "ceiling" effect of downstream affordability. The current predicament of midstream enterprises has already sounded an alarm. If lithium prices continue to rise unilaterally and rapidly, it will seriously erode the profits of the entire mid-to-downstream manufacturing industry and eventually backfire on demand. This negative feedback mechanism will inhibit price increases.

 

Synthesizing institutional views, in the short term, lithium carbonate prices will likely maintain high-level operation. The key observation points for the trend lie in the industrial production scheduling plans for January 2026 and downstream acceptance of current prices. In the long run, this round of volatility may accelerate the optimization of the industry chain structure. Large-scale material enterprises with integrated lithium resource layouts and deep binding to high-quality customers will see their risk resistance capabilities and cost advantages become increasingly prominent. The entire industry is expected to shift from simple competition based on production capacity scale to a comprehensive contest of supply chain stability, technological iteration speed, and cost control capabilities. A healthier and more resilient lithium battery ecosystem requires the establishment of a more reasonable and transparent mechanism for profit sharing and risk co-sharing between upstream and downstream.