CITIC SEC: Profitability in the iron-lithium industry is expected to reach a cyclical turning point, recommending top iron-lithium enterprises.

CITIC SEC released a research report stating that the profitability of the lithium iron industry is expected to reach a cyclical turning point. On the demand side, the further increase in the penetration rate of lithium iron in the power field and the high prosperity of energy storage bring rapid growth in demand. CITIC SEC estimates that the global shipment volume of lithium iron phosphate cathode materials is expected to reach 5.25 million tons by 2026, a year-on-year increase of 36%; on the supply side, limited growth is expected by 2026, with overall capacity utilization expected to further improve, and high-end products still in relative shortage. Currently, the profitability of lithium iron is at a cyclical low. With the improvement of supply and demand structure, there is hope for recovery. The further clarification of the trends towards product high-endization and internationalization is expected to bring extra profits to leading companies in the industry. The report recommends focusing on the leading companies in the lithium iron industry. Key points from CITIC SEC's report are as follows: Demand: Production continues to hit new highs, and industry prosperity is further improving. In recent years, the large-scale application of fast-charging lithium irons in the power field and the high demand for energy storage have further boosted the growth of shipments of lithium iron phosphate cathode materials. According to Ze Yan Consulting data, from January to November 2025, China's total production of lithium iron phosphate reached 3.48 million tons, a year-on-year increase of 57.9%; looking at November alone, the production in November 2025 was 417,000 tons, a year-on-year increase of 52.8% and a monthly increase of 4.2%, reaching a historical high. Benefiting from the increase in the share of the power field and the rapid growth in energy storage demand, we believe that the demand for lithium iron materials will continue to grow rapidly, with the estimated global shipment volume of lithium iron phosphate cathode materials reaching 5.25 million tons by 2026, a year-on-year increase of 36%, and expected to rise to 11.36 million tons by 2030, corresponding to a CAGR of about 24% from 2025 to 2030. Supply: Capacity utilization continues to improve, and high-end products are expected to remain scarce by 2026. The period from 2020 to 2023 was the peak period of industry capital expenditure, which has significantly slowed down. By the end of the third quarter of 2025, the year-on-year growth rate of the industry's "fixed assets + construction in progress" was only 7.5%, at a historical low. In terms of financing, we believe that the possibility of companies significantly expanding production through external financing channels (such as equity financing, credit financing, etc.) is low. According to Ze Yan Consulting data, since 2025, the monthly capacity utilization rate of the lithium iron phosphate industry has been trending upwards. For example, in November, the overall capacity utilization rate in the industry was approximately 78.1%, an increase of 10.9 percentage points year-on-year and 2.2 percentage points month-on-month. Leading companies such as Hunan Yuneng New Energy Battery Material are fully utilized. In terms of capacity, we estimate that the average effective capacity of the industry in 2025 is about 5.7 million tons, and by 2026, it is expected to reach about 7.47 million tons, a year-on-year increase of 31.0%. Correspondingly, the overall capacity utilization rate is expected to be above 70%, a 2.5 percentage points increase compared to 2025. In addition, the demand for high-pressure solid lithium for fast-charging power batteries and large-capacity energy storage batteries is further increasing. Currently, only a few leading companies in the industry can stably produce fourth-generation high-pressure solid products. We expect that high-end products will still be structurally scarce by 2026. Profit: Supply and demand improvement combined with anti-cannibalization guidance, industry profitability is expected to recover. Currently, the profitability of lithium iron is at a cyclical low. As of the third quarter of 2025, the gross profit margin of enterprises was generally below 10%. According to our calculations, as of the third quarter of 2025, only two companies in the industry are profitable, with profits per ton at around 1000 yuan, while the rest of the companies are still operating at a loss. Looking ahead, we believe that there is room for the unit profitability of lithium iron enterprises to recover, mainly due to: 1) Improvement in overall supply and demand structure: Downstream demand has continued to exceed expectations since the third quarter of 2025. The capacity utilization of leading lithium iron players is basically at full capacity or even oversupply. There is a significant contradiction between high demand and low profitability. Companies are more eager for profitability recovery. 2) Anti-cannibalization policy guidance: China National Chemical Engineering and the Physical Power Industry Association will periodically release the industry's average cost index based on actual operating conditions of enterprises to provide a reference basis for subsequent pricing. We estimate that the current average market price of lithium iron is about 2000 yuan lower than the average cost. We expect there is significant room for the subsequent recovery of processing fees. 3) Premiums brought by high-end products and internationalization: Structurally, high-pressure solid and long-life cycle high-end capacities, as well as overseas capacities, have scarcity features, resulting in certain premiums. According to GGII data, the processing fee for high-pressure solid products is usually 2000-5000 yuan/ton higher than ordinary products. Leading companies are expected to achieve differentiated competition in high-end products and overseas capacity layout, capturing higher profit levels. Risk factors: - Risk of lower-than-expected sales of new energy vehicles - Risk of lower-than-expected demand for energy storage installations - Risk of unexpected fluctuations in raw material prices - Risk of intensified industry competition - Risk of overseas capacity progress falling below expectations.