Lithium Prices Skyrocket, but Midstream Giants Hit ‘Pause’! Coincidence or ‘Tactics’?

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 lithium iron phosphate (LFP) producers such as Hunan Yuneng, Wanrun New Energy, Defang Nano, and Anda Technology have successively disclosed plans for maintenance and production cuts lasting one month. Why is there a divergence 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 maneuver?

On December 26th, lithium carbonate prices achieved a landmark breakthrough. On that day, the main lithium carbonate contract on the Guangzhou Futures Exchange (GFEX) 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 sync and market trading remaining active.

The fundamental driver supporting this rally lies in the explosion of demand. The energy storage market has become a new growth engine; statistics from GGII indicate that China’s total lithium battery shipments for energy storage 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 served 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, manufacturers rushed to commence construction within 2025 to lock in project subsidies. Additionally, major energy storage projects are planned in Europe, Saudi Arabia, and other regions. The confluence of these factors led to a surge in installation demand, resulting in a situation where high-end battery cells were “hard to find.” Furthermore, China’s power battery demand 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 running at full capacity, and some automakers have even resorted to “stationing at factories to wait for goods” to ensure supply.

However, amidst the boom in upstream raw materials and robust downstream battery orders, four leading midstream LFP enterprises collectively cut production. From the evening of December 25th to the 26th, four major LFP producers—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 each maintenance period lasting one month. Among them, Wanrun New Energy expects to cut LFP production by 5,000 to 20,000 tons; Hunan Yuneng expects to cut phosphate cathode material production by 15,000 to 35,000 tons; Anda Technology expects to cut LFP production by 3,000 to 5,000 tons; and Defang Nano announced the maintenance of some equipment starting January 1, 2026, for approximately one month. Overall, excluding Defang Nano, the combined production cut scale for the three enterprises ranges from 23,000 to 60,000 tons. Such a synchronized reduction in scale has sparked 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 rates 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 under overload since the fourth quarter,” and Defang Nano and Anda Technology also face pressure for equipment maintenance 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 calciners), and regular maintenance aims to perform necessary upkeep and technological upgrades 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 a pursuit of rebalancing interests within the industry chain.

As the core raw material for LFP, lithium carbonate prices have risen continuously 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 cathode material production costs. Meanwhile, LFP processing fees have long been compressed below 15,000 CNY/ton, falling below 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. 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, the cathode material sector has accumulated massive production capacity. When demand recovery first drives upstream resource prices to soar, the midstream sector, due to fierce competition and weak bargaining power, sees its overcapacity amplify cost shocks, and profits are drastically compressed in the industry chain redistribution. In a context where raw material prices continue to rise but cost pressures cannot be smoothly passed downstream, production equates to losses. Therefore, taking the initiative to cut production has become a rational choice for enterprises to cope with losses and reduce cash flow hemorrhage. The nearly simultaneous maintenance by leading enterprises essentially forms industry coordination; by collectively contracting supply in the short term, they aim to support market prices. In this context, lowering operating rates transforms from passive operational pressure into an active market “tactic”—its core intention is to create crucial 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.” Consequently, the concentrated maintenance by leading enterprises is also intended to strengthen their bargaining chips for price increases 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 – 3,000 CNY/ton, which would significantly improve profitability if implemented.

This seemingly independent “tactic” actually resonates in frequency with upstream moves. Recently, upstream miner Tianqi Lithium, noting a “continuous and significant deviation” between traditional quotations (such as those from SMM) and spot/futures prices, deemed this a challenge to its operations and thus adjusted its pricing benchmark, reflecting a battle for dominance over a fairer pricing system. Meanwhile, the collective production cuts by midstream enterprises are a response to upstream demands for cost pass-through. Seemingly different moves by the upstream and downstream ultimately converge, aiming to jointly push product prices back toward a “cost + reasonable profit” level.

Looking ahead at the subsequent trend of lithium carbonate prices, experts point out that the market will enter a new phase of complex games 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 industrial factors.

Cathode material factories cutting production to support prices makes a downward pass-through of lithium price increases promising. SMM analysis points out that although leading LFP enterprises have initiated a second round of negotiations recently, the first round for most other material factories has yet to materialize. Downstream battery cell manufacturers have generally recognized the pressure from raw material price increases, but actual implementation still awaits further negotiation results. If subsequent price increases by cathode material factories are realized, it will be more conducive to the downward transmission of lithium price increases, opening up upside potential. At the same time, Tianqi Lithium’s adjustment of its pricing benchmark also indirectly confirms strong downstream demand.

Industry high prosperity continues, with lithium carbonate inventories remaining low consecutively. According to survey data from Top 20 battery factories by TD Tech (TD), 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, total weekly lithium carbonate inventories on December 25, 2025, were 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, policies promoting wider peak-valley price spreads, and the introduction of capacity electricity prices or compensation policies in some domestic provinces, domestic energy storage yields are expected to rise, thereby driving demand. According to Xinluo Consulting statistics, global lithium battery shipments for energy storage 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 by major global lithium mining companies have shown an inflection point decline since 2024, corresponding to an expected slowdown in supply growth for 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, room for further significant upward price movement is clearly constrained. First, supply elasticity will gradually emerge. When prices stabilize at 130,000 CNY/ton and above, enthusiasm for resuming production of marginal capacities (such as mica-based lithium extraction) that were 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 sounded the alarm; if lithium prices continue to rise unilaterally and rapidly, it will seriously erode the profits of the entire mid-to-downstream manufacturing industry, ultimately biting back demand. This negative feedback mechanism will suppress 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 industry 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 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 sharing between the upstream and downstream.