On the evening of October 19, Hunan Yuneng (301358.SZ) released an announcement that drew market attention back to the lithium iron phosphate (LFP) track: the company's board of directors reviewed and approved a proposal to invest no more than CNY 2 billion in the construction of the Phase VI LFP project. The funding will be self-raised by the enterprise, with a construction period of 12 months, located at the headquarters park in Heling Town, Yuhu District, Xiangtan City.
This marks Hunan Yuneng's third round of significant capacity expansion this year, following the July announcement of the CNY 24 billion integrated mining and chemical project in Weng'an, Guizhou (planning to add 800,000 tons of LFP capacity), and the September adjustment of the Spanish project from 50,000 tons to 70,000 tons (with investment increased from CNY 982 million to CNY 1.65 billion).
According to the environmental impact assessment (EIA) public information, the Phase VI project actually corresponds to an annual production of 200,000 tons of nano-grade LFP and 200,000 tons of LFP semi-finished products, with a total construction area of approximately 80,000 square meters.
At a time when LFP prices have fallen from their June peak and second-tier players in the industry are simultaneously increasing their investments, why is Hunan Yuneng, which has held the top global market share for six consecutive years, investing another CNY 2 billion at its Xiangtan headquarters now?
This is not a simple "land grab," but rather a precise move by the industry leader to fill the gap in high-end capacity under a tight balance pattern.
"Passive Capacity Expansion" Under 95.92% Capacity Utilization
Let's first look at a set of hard data.
Hunan Yuneng's 2026 semi-annual report shows that in the first half of the year, it achieved an operating revenue of CNY 34.877 billion, a year-on-year increase of 142.92%; net profit attributable to shareholders of the parent company was CNY 2.91 billion, a year-on-year increase of 853.51%; and net profit after deducting non-recurring gains and losses was CNY 2.958 billion, a year-on-year increase of 854.20%.
Sales volume of phosphate cathode materials reached 667,200 tons, a year-on-year increase of 38.77%; the corresponding gross profit margin was 14.81%, an increase of 7.84 percentage points year-on-year.
More notably, on the capacity side. In the first half of the year, the company's annualized capacity for phosphate cathode materials reached 1.4 million tons, with a capacity utilization rate as high as 95.92%, basically operating at full production and full sales.
Survey data from third-party institutions shows that, by shipment volume, Hunan Yuneng's global market share in 2025 was 28.2%, ranking first among global LFP cathode material suppliers for six consecutive years.
In other words, the 200,000-ton capacity of Phase VI is not a preemptive move during a period of surplus capacity, but a "passive release" against the backdrop of nearly maxed-out existing capacity and tight supply of high-end products.
The company also explicitly stated at its August earnings briefing that "the implementation of price increases is going well, and the supply of high-end products is tight." The semi-annual report disclosed that in the first half of the year, the company's sales volume of high-end products reached 416,700 tons, with the proportion increasing to 62.46%; sales in the energy storage sector accounted for about 53%; and overseas sales reached 18,000 tons, achieving leapfrog growth.
In terms of investment intensity, CNY 2 billion corresponds to 200,000 tons of nano-grade LFP capacity, with a unit investment of approximately CNY 10,000 per ton, which is a mature replication model based on the existing supporting facilities at the Xiangtan headquarters.
The 12-month construction period means that effective supply can be formed as early as the end of 2027. In contrast, the company's under-construction 800,000-ton project in Weng'an, Guizhou, has a cycle of up to 5 years, belonging to a more long-term resource integration layout; the Phase VI project is the "immediate combat capability" to fill the high-end capacity gap in 2027-2028.
The Subtle Timing of Industry Tight Balance and Price Decline
The launch of the Phase VI project is directly related to the current supply and demand pattern in the LFP industry.
Data shows that the average price of power-type LFP rose from CNY 35,771 per ton in the third quarter of 2025 to CNY 58,178 per ton in the second quarter of 2026, an increase of 63%; energy storage-type LFP rose from CNY 29,000 per ton to CNY 57,016 per ton, an increase of 97%.
In June, the monthly average price of power-type products reached CNY 61,113 per ton, up 19.34% from the beginning of the year, and a year-on-year increase of over 80%.
However, the price curve continued to decline in the third quarter. As of October 20, the benchmark price of LFP had fallen to CNY 48,666.67 per ton, down 6.7% from CNY 52,166.67 per ton in early October, breaking the round number threshold of CNY 50,000 per ton.
The market shows structural differentiation: transactions for ordinary low-compaction products are weak and prices are under pressure, with mainstream transactions for power-type products at CNY 52,000-55,000 per ton; supply of high-compaction power-type and long-cycle energy storage grades is tight, still maintaining a certain premium.
High growth on the demand side remains the core foundation supporting prices.
Data from the China Automotive Power Battery Innovation Alliance shows that in September, the installed capacity of domestic power batteries was 87.2 GWh, a year-on-year increase of 14.7%; among them, the installed capacity of LFP batteries was 74.5 GWh, a year-on-year increase of 19.9%, accounting for over 85% of the total installed capacity.
The energy storage sector is even more astonishing: in September, sales of energy storage batteries reached 73.5 GWh, a year-on-year increase of 104.4%; in August, sales of energy storage batteries reached 76.3 GWh, a year-on-year increase of 114.3%. From January to September, the cumulative sales of power and energy storage batteries in China reached 1,681.7 GWh, a year-on-year increase of about 57%.
Research by GGII (Gaogong Industry Research Institute) also shows that the average operating rate of the LFP industry in July was about 90%, but the actual effective supply of high-end capacity remains tight.
A research report by CSC Financial points out that with the increase in the penetration rate of fast charging for power batteries and large energy storage cells, the demand for high-compaction LFP is surging, and the supply and demand structure of high-end high-compaction products is generally tight.
This also explains why Hunan Yuneng repeatedly emphasized in the announcement "to meet the future business development needs of downstream new energy vehicles (NEVs), energy storage, and emerging application fields" — the Phase VI products are positioned as nano-grade and high-compaction, precisely targeting the high-end gap.
Rise of Capacity Expansion: Incumbents and Cross-Industry Players Make Moves Simultaneously
Hunan Yuneng is not the only player expanding capacity. Since the beginning of this year, leading LFP enterprises have collectively initiated a new round of capacity deployment.
Dynanonic has currently built an annual capacity of 450,000 tons for phosphate cathode materials, and announced two large-scale investments totaling about CNY 8.7 billion in the first half of the year; in the CNY 2.9 billion private placement plan disclosed in June, CNY 2.15 billion was allocated to the Qujing "Lithium Battery New Material Integration (Phase I)" project, adding 200,000 tons of new-generation high-compaction phosphate new material capacity, with a construction period of 24 months.
Wanrun New Energy has put into operation an annual capacity of 468,000 tons. The first phase of 120,000 tons in Binzhou, Shandong, has been completed and put into operation, while the release of another 120,000 tons of capacity has been delayed to December 2026. Hongmai High-Tech's 70,000-ton high-compaction project is under construction, and the US base plans for 50,000 tons.
In addition, the capacity utilization rate of GCL Lithium Battery's Yixing base has reached 100% for its 150,000 tons, and it has been supplying CATL in batches since 2025.
The most noteworthy is the cross-industry disruptor Wanhua Chemical. This chemical giant, which started with MDI, has listed battery materials as its second main business and is ramping up production in 2026: the first phase of 100,000 tons at the Haiyang Green Power Industrial Park was put into operation in March, while the second and third phases of 200,000 tons each are being built simultaneously and will be completed by the end of the year; the first phase of 320,000 tons in Laizhou started construction in March and will also be put into operation by the end of the year. Upstream, the 240,000-ton iron phosphate project in Penglai was approved in August, and the Meishan base is supported by Dazhong Mining's 200,000-ton lithium salt project.
According to Wanhua Chemical's official statements, by 2027, it will form a scale of 1 million tons of iron phosphate and 1 million tons of LFP. The fourth-generation products are already in mass production and supply, and the fifth-generation products have been recognized by leading customers.
Coupled with the fact that leading phosphate chemical companies have also invested a total of nearly CNY 15 billion into the LFP track this year. This means that new capacity in the industry will be released in a concentrated manner in 2027-2028, the overcapacity pressure for ordinary LFP still exists, and the focus of competition will further tilt towards high-compaction, fast-charging, and large energy storage cell-adapted products.
Obviously, the competitive pressure Hunan Yuneng will face next cannot be said to be small.
Hidden Concerns: Cash Flow and Customer Concentration
Beyond the narrative of capacity expansion, there are still several sets of data worth paying attention to.
First, cash flow pressure. The semi-annual report shows that in the first half of the year, the net cash flow generated from operating activities of Hunan Yuneng was a net outflow of CNY 1.763 billion.
With full capacity and doubled revenue, the operating cash flow is negative, mainly affected by the expansion of inventory scale, increased prepayments for upstream raw materials, and the account period structure. The CNY 2 billion for this Phase VI project is entirely self-raised by the enterprise. Coupled with the phased investment in the Guizhou Weng'an project and the capital increase for the Spanish project, the company's capital expenditure intensity will remain at a high level.
Second, customer concentration. Although the company's customer structure continues to be optimized, the sales proportion of the top five customers in2025 still reached 71.38%, among which CATL alone contributed a procurement amount of CNY 10.3 billion, accounting for 29.73% of total revenue.
However, since the second half of 2026, shareholders such as CATL and BYD have continuously reduced their holdings in Hunan Yuneng. Against the backdrop of loosening equity relations, whether the leader's capacity expansion can continue to secure long-term orders from core customers will determine the digestion pace of the Phase VI capacity.
The company also explicitly wrote in the "Risk Warning" of the announcement: if there are significant changes in future market demand, demand falls short of expectations, or there are significant adverse changes in the prices of raw materials and products, the newly added capacity will face the risk of being difficult to digest.
Third, the long-term target anchored by equity incentives. The equity incentive plan recently launched by the company sets a net profit target of CNY 5.5 billion for 2029, an increase of more than three times compared to 2025.
Based on the current first-half profit level of CNY 2.91 billion, the full-year net profit is expected to significantly exceed institutional expectations at the beginning of the year. However, to firmly stand at the CNY 5.5 billion level in 2029, triple support from sales volume, price, and product structure is required.
The Positioning Battle for High-End Capacity
In summary, the essence of Hunan Yuneng's CNY 2 billion Phase VI project is a forward-looking layout by the global LFP leader to fill the high-end high-compaction capacity gap in 2027-2028 under full production status.
It is neither a counter-cyclical bottom-fishing at the bottom of the industry nor blind expansion at the peak of prices, but increasing investment in line with the trend under the triple signals of "the proportion of LFP in power battery installations breaking through 85%, doubling growth in energy storage sales, and tight supply of high-end capacity."
However, it must be seen that the differentiation in the LFP industry is intensifying, and Hunan Yuneng is facing multiple squeezes from the second tier, disruptors like Wanhua Chemical, and new entrants from the phosphate chemical industry.
Relying on a 95.92% capacity utilization rate, a 62.46% proportion of high-end products, and integrated supporting facilities at its headquarters, Hunan Yuneng currently holds a positional advantage in this round of positioning battle. Whether the 200,000-ton nano-grade production line of Phase VI can be smoothly put into operation by the end of 2027 and digested by high-end orders will become the next key node to test the true color of the leader.