Guojin Securities: Economic recovery is on the rise, and the high-pressure dense iron lithium barrier is enhanced

According to the Zhitong Finance APP, Guojin Securities released a research report stating that the LFP battery is iterating towards high energy density and fast charging, driving the volume of high-density LFP, with increased supply barriers leading to an optimized landscape. It is also expected that in 2025, the supply and demand for high-density lithium iron phosphate will be tight, with better unit prices and profitability. The supply and demand for conventional lithium iron phosphate is expected to recover, and industry profitability is likely to bottom out and rebound, with market share concentrating towards lower-cost producers.

The main points of Guojin Securities are as follows:

(1) High-density lithium iron phosphate: Tight supply and demand, better unit profitability, and increased barriers leading to an optimized landscape.

LFP (lithium iron phosphate) batteries are iterating towards high energy density and fast charging, driving LFP towards high density.

High energy density and fast charging are long-term trends for LFP batteries:

① In the power sector, CATL will launch the Shenxing 4C/Shenxing Plus batteries in 2023/2024, with a range of 700/1000 kilometers, followed by BYD, SUNWODA, and others;

② The energy density requirements for energy storage batteries are increasing, with SUNWODA's 314Ah cell improving by 12% compared to the 280Ah. High-performance LFP batteries require higher LFP compaction density, with the compaction density for power LFP expected to iterate from 2.4-2.55 to above 2.6g/cm3, and the compaction density requirements for energy storage also increasing.

It is expected that in 2025, the supply and demand for high-density lithium iron phosphate will be tight.

Defining LFP cathode products for power use at 2.6g/cm3 and above as high-density products, CATL's Shenxing batteries will enter large-scale production in 2024, stimulating demand for high-density LFP. It is expected that the shipment proportion will further increase in 2025, while high-performance LFP batteries from BYD and other manufacturers will also enter mass production, driving the demand for high-density LFP. In 2024, the supply of high-density lithium iron phosphate in the industry will mainly come from Fulin Precision, and in 2025, companies like Hunan YN will likely expand supply. The expected industry demand and supply in 2025 are 730,000 tons and 780,000 tons, respectively, indicating a tight overall supply and demand for high-density lithium iron phosphate.

The unit profitability of high-density lithium iron phosphate is better.

LFP companies mainly earn processing fees, and lithium iron phosphate manufacturers have reported multiple rounds of slight price increases since the fourth quarter, mainly driven by the increased shipment scale of the new generation of high-density lithium iron phosphate. A compaction density of 2.55-2.65g/cm3 can correspond to an increase in processing fees of 1,000-3,000 yuan. According to Baichuan Yingfu, in terms of pricing for power-type lithium iron phosphate, Jiangxi Shenghua's products are all high-density, and its price difference with Hubei Wanrun has adjusted from -500 yuan at the beginning of January 2024 to 2,500 yuan in mid-December.

The barriers for high-density LFP are increasing, and the landscape is becoming more concentrated, with Fulin Precision and Hunan YN making rapid progress.

It is expected that companies capable of mass-producing high-density LFP will concentrate among leading enterprises, with high concentration, based on:

① Leading enterprises maintain large-scale shipments to leading customers (CATL, BYD) and have a first-mover advantage in technology;

② Leading enterprises have large and more stable order volumes, and the defective products formed during the development of the fourth-generation products can still be digested through second and third-generation product orders, reducing development costs.

Currently, companies laying out the fourth-generation high-density LFP include Hunan YN, Fulin Precision, Dofang Nano, Longpan Technology, Wanrun New Energy, and Anda Technology. Except for Hunan YN and Fulin Precision, which have formed bulk shipments, most companies are still in the testing and verification stage. Fulin Precision's market share has increased from 3% in 2023 to 5% in the first half of 2024, showing significant results (2) Conventional Lithium Iron Phosphate: Expected Supply and Demand Recovery, Industry Profitability Likely to Bottom Out and Rebound, Market Share Expected to Concentrate Among Low-Cost Producers.

Second Burn Process Reduces Capacity, Conventional Lithium Iron Phosphate Utilization Rate Expected to Increase, Capacity Clearance Accelerates

Considering the new capacity added in 2025 and the capacity loss from the second burn (approximately 30-40%), the conventional lithium iron phosphate capacity is expected to be 4.47 million tons and 3.98 million tons in 2024 and 2025, respectively, with demand at 2.08 million tons and 2.24 million tons, corresponding to utilization rates of 46% and 56%, showing significant recovery in 2025.

Currently, there is a clear differentiation in utilization rates within the industry, with leading companies having relatively full orders while third-tier companies have low capacity utilization. As downstream demand shifts towards fast charging and large capacity, industry profits are likely to concentrate among leading players, and the disparity in operating rates within the industry will widen, accelerating the clearance of low-end capacity.

Processing Fees Expected to Bottom Out in Q4 2024, Lithium Carbonate Prices Stabilizing, Industry Profitability Expected to Rebound from Bottom

Since 2023, due to significant oversupply, it is expected that industry processing fees will decrease from CNY 35,000/ton at the beginning of 2023 to CNY 14,500/ton by the end of Q3 2024; lithium carbonate prices have also significantly declined, leading to a decrease in industry gross margins (mainly due to the lag in price changes compared to cost changes) and an expansion of inventory impairment. By Q4 2024, both processing fees and lithium carbonate prices are expected to stop falling and stabilize, with industry profitability expected to rebound from the bottom.

Industry Expected to Concentrate Among Low-Cost Producers

In 2022, 2023, and the first half of 2024, Hunan Yuneng's market share was 24%, 32%, and 34%, respectively, while the industry's CR5 was 50%, 53%, and 53%. Hunan Yuneng continues to expand its market share due to its cost advantages. In terms of gross profit per ton, the gross profit per ton for Hunan Yuneng/Fulin Precision/ Wanrun New Energy/Defang Nano/Longpan Technology/Anda Technology in the first half of 2024 is expected to be CNY 2,700/700/breakeven/-1,000/1,000/-3,800/ton. The cost advantages within the industry mainly come from:

1. Lower Cost of Ammonia Method: The price of phosphorus obtained from monoammonium phosphate is lower than that from concentrated sulfuric acid, and the sale price of the by-product ammonium sulfate is favorable, making the cost of preparing iron phosphate via the ammonia method lower;

2. Lower Electricity Prices in Southwest Region: The total electricity demand for integrated preparation is approximately 4,000 kWh/ton, and companies with major capacity distributed in the southwest region have lower electricity costs;

3. Upstream Integration: The main raw materials for LFP are phosphorus sources, iron sources, and lithium sources. The industry mainly reduces costs through the integration of phosphorus and lithium sources. For example, Hunan Yuneng is developing the Huangjiapo Phosphate Mine in Guizhou (designed capacity of 1.2 million tons of phosphate rock per year) and the Dashichang Phosphate Mine (expected annual capacity of 2.5 million tons), aiming for full self-supply of phosphorus sources in the long term through phosphorus source integration; Longpan Technology is collaborating with CATL to develop 40,000 tons of lithium processing + battery recycling, reducing costs through lithium source integration.

Investment Recommendations and Valuation

Focus on Hunan Yuneng (301358.SZ) (LFP has cost advantages, high-density products gradually ramping up), Fulin Precision (300432.SZ) (high-density LFP in bulk supply to CATL, lithium iron phosphate performance reversal + high prosperity in auto parts business), and consider second-tier companies such as Wanrun New Energy (688275.SH), Longpan Technology (02465,603906.SH), Defang Nano (300769.SZ), Fengyuan Co., Ltd. (002805.SZ), and Anda Technology (830809.BJ) Risk Warning: Risks of intensified market competition and changes in demand, risks of fluctuations in raw material prices, and risks of significant changes in the main technological routes of the industry