On the evening of October 20, Shandong Fengyuan Chemical Co., Ltd. (002805.SZ) announced that its wholly-owned subsidiary, Shandong Fengyuan Lithium Energy Technology Co., Ltd. ("Fengyuan Lithium Energy"), recently signed a three-year Lithium Iron Phosphate Cooperation Framework Agreement with Wuhan Chuangneng New Energy Co., Ltd., Xiaogan Chuangneng New Energy Innovation Technology Co., Ltd., and Yichang Chuangneng New Energy Innovation Technology Co., Ltd. (collectively referred to as "Chuangneng New Energy").
According to the agreement, Fengyuan Lithium Energy will supply a total of 100,000 tons of lithium iron phosphate cathode materials to Chuangneng New Energy over the next three years (from September 20, 2025, to December 31, 2028).
It is important to note that despite a significant increase in sales of lithium battery cathode materials, Fengyuan Co.'s annual report for 2024 and semi-annual report for 2025 indicate that it remains deeply mired in losses due to changes in the supply-demand landscape, declining product prices year-on-year, ramp-up issues with new production lines, and increased depreciation costs. The net loss attributable to shareholders for the entire year of 2024 was 362 million yuan, with a loss of 243 million yuan reported in the first half of 2025.
Simultaneously, the lithium battery cathode materials industry faces multiple risks, including market turbulence, significant fluctuations in raw material prices, intensifying competition, accelerated technological iterations, and potential structural oversupply in production capacity.
**Three-Year Agreement for 100,000 Tons Supply**
The announcement from Fengyuan Co. details that its subsidiary Fengyuan Lithium Energy has entered into a Cooperation Framework Agreement with Chuangneng New Energy.
The agreement stipulates that from September 20, 2025, to December 31, 2028, Fengyuan Lithium Energy will supply a total of 100,000 tons of lithium iron phosphate cathode materials to Chuangneng New Energy.
The agreement emphasizes a commitment to establishing a "stable, mutually trusting, and win-win partnership." Chuangneng New Energy promises to prioritize Fengyuan Lithium Energy's products and allocate a certain share of procurement under equivalent business conditions. As the supplier, Fengyuan Lithium Energy ensures the stable execution of the supply, stating, "We will reasonably arrange production to guarantee a stable supply of qualified products."
In addition to clarifying the supply volume and cooperation duration, both parties will collaborate on the iterative upgrading and cost optimization of cathode materials to promote technological innovation and industrial advancement.
Regarding pricing, the agreement specifies that the settlement price for the products will be based on a price or valuation standard previously agreed upon by both parties. Additionally, in the event of significant market changes affecting product models and prices during the term of the agreement, these will be subject to a supplementary agreement negotiated by both parties.
For Fengyuan Co., entering into this cooperation framework agreement marks another significant development in expanding its downstream customer base and solidifying its market position, following a similar agreement with Huizhou BYD Battery Co., Ltd. in April 2025.
Fengyuan Co. indicated that this collaboration reflects recognition from downstream customers and fosters the establishment of a long-term, stable partnership to achieve supply-demand linkage and mutual benefits. If this collaboration proceeds smoothly, it is expected to further consolidate and enhance the company's industry position, overall competitiveness, and sustainable development capabilities, benefiting the company's future growth in production capacity and sales orders, thus positively influencing its financial performance in the lithium battery cathode materials business.
**Company Still Struggling with Losses**
Although the 100,000-ton lithium iron phosphate cathode materials supply agreement provides assurance for Fengyuan Co.'s future sales, the uncertainty remains whether this will effectively translate into tangible financial results.
The current pressure on operational performance is a significant issue that Fengyuan Co. must confront. According to its semi-annual report for 2025, the company generated 723 million yuan in revenue during the reporting period, representing a year-on-year increase of 21.23%. However, it recorded a net loss of 243 million yuan, a sharp increase from the loss of approximately 80.74 million yuan in the previous year.
Fengyuan Co. explained that the widening losses stem primarily from capacity scale expansion year-on-year, with new production lines undergoing a ramp-up phase when they come online. The lengthy validation periods for new products result in a mismatch between new capacity and downstream demand over time, leading to insufficient overall capacity utilization. Simultaneously, increased depreciation costs following the expansion of production lines further inflate the manufacturing costs per unit of finished products.
In 2024, the company also incurred losses, with revenue of 1.49 billion yuan, down 46.35% year-on-year, and a net loss of 362 million yuan. The annual report for 2024 stated that the losses were primarily due to changes in the industry's supply-demand dynamics. While there was a substantial year-on-year increase in sales of lithium battery cathode materials, prices fell, and the overall equipment utilization rate remained insufficient, contributing to high per-unit manufacturing costs due to low capacity utilization, alongside inventory write-down losses, asset impairments, and credit impairments.
Additionally, the lithium battery cathode materials industry where Fengyuan Co. operates is rife with risks and uncertainties.
In both the 2025 semi-annual report and the 2024 annual report, Fengyuan Co. pointed out multiple industry risks, including market fluctuation risks—where macroeconomic conditions and adjustments in industry policies could impact downstream demand. If the company fails to seize opportunities promptly, it may suffer loss of competitiveness. The company indicated it would continuously monitor industry policies and market dynamics, enhancing its analysis of industry development trends to adjust operational strategies accordingly.
Notably, it is essential to recognize the nature of the agreement with Chuangneng New Energy. Fengyuan Co. has stated in its risk disclosures that the Cooperation Framework Agreement is merely a strategic framework based on the intention to collaborate and does not constitute legally binding obligations. Specific implementation of subsequent cooperation requires mutual negotiations between both parties, and uncertainties exist in the execution process. Changes in relevant policies, macroeconomic environments, market conditions, and other unforeseen or uncontrollable factors may pose risks that prevent the agreement from being fulfilled as planned.
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