On July 24, shares of Furong Group Co Ltd hit the daily limit up at the market open, marking a second consecutive day of such gains. The price movement is driven by a rapid increase in the price of vinylene carbonate (VC), a key electrolyte additive used in lithium-ion batteries.
According to Baichuan Yingfu, a market research firm, the average market price of VC has risen to 200,000 yuan per tonne, with a cumulative increase of over 21% in the past week (July 17-23). This surge is attributed to a supply gap caused by significant production cuts.
The direct cause of the supply gap is the suspension of a 10,000-tonne-per-year VC production base in Dalian, owned by Suzhou Huayi New Energy. Analyst Zhao Weiwei from Xinluo Information noted that this facility had been operating at full capacity, and the shutdown is expected to impact supply for about one month.
However, the risk of overcapacity expansion remains as rising prices may stimulate further capital expenditure. Many companies are seizing the opportunity to expand, with planned capacity expected to come online over the next few years. Wasion Lithium told reporters, "We have no new production capacity recently, but we originally planned to add 30,000 tonnes of annual capacity by 2026, and now we plan to invest in a single 60,000-tonne project."
The production halt creates a supply gap.
VC is a critical additive that enhances the cycle life and safety performance of lithium-ion batteries. As the proportion of energy storage batteries continues to rise, the addition ratio of VC has increased, driving demand growth. The recent sharp price increase is largely due to a sudden supply contraction. Zhao Weiwei explained that the 10,000-tonne annual capacity shutdown, which was previously running at full capacity, has created a market supply gap.
In response to tight supply, VC manufacturers have generally suspended price quotations. Baichuan Yingfu noted, "With the increase in VC usage, a market gap has emerged, and companies are collectively supporting higher prices. Inventory is very tight, with most companies unable to supply large quantities, and traders holding high-priced stock."
According to various brokerages and consulting firms, industry inventory has dropped to low levels. Although nominal total capacity exceeds 190,000 tonnes per year, effective capacity that can consistently supply is only about 110,000 tonnes. New projects typically require a three-month ramp-up period before stable production, making it difficult to form effective supply in the short term.
A report from Xinhua Huifu stated that VC, as a hazardous chemical, faces high environmental and safety regulatory requirements, making it challenging for companies to operate at full capacity for long periods. Frequent maintenance shutdowns further widen the gap between nominal and effective capacity.
Demand continues to grow. On one hand, the new national standard implemented in July this year imposes stricter requirements on power battery safety, preventing a reduction in VC addition ratios due to cost factors. On the other hand, the new energy vehicle and energy storage markets continue to expand, driving up electrolyte production.
Baichuan Yingfu predicted in early July that during the peak season in the second half of the year, the monthly VC supply-demand gap could widen to 1,000 to 1,500 tonnes, maintaining a tight inventory balance. Following the sharp rise in public market prices, the capital market reacted quickly. On July 23-24, Furong Group saw two consecutive daily limit ups. Other VC companies also rose, with Wasion Lithium shares climbing about 11% and Haike Xinyuan shares surging 20% on July 23.
Regarding whether price increases will translate into profits, Fuxiang Co Ltd told reporters, "Rising spot prices will boost our product selling prices, but profit improvement may lag. Existing orders are still executed at contract prices, while new orders reference market quotes."
Furong Group has already benefited from this year's performance. The company expects net profit for the first half of 2026 to be between 369 million and 418 million yuan, up 50.02% to 70.27% year-on-year. The company stated that since the fourth quarter of 2025, the VC industry's supply-demand dynamics have changed significantly, with product prices rising continuously, making the VC business a key driver of profit growth.
New capacity is on the way.
During the VC price surge, companies with mature production capacity stand to benefit the most. Currently, Furong Group has 10,000 tonnes of annual VC capacity, Wasion Lithium has 13,000 tonnes of effective annual capacity, and both Fuxiang Co Ltd and Yongtai Technology have about 10,000 tonnes of annual capacity. Haike Xinyuan previously expected its annual VC capacity to reach 15,000 tonnes by 2026.
However, industry players remain cautious about the medium- to long-term outlook. Major VC companies have not halted expansion plans. Fuxiang Co Ltd explained, "Our original annual VC capacity was 8,000 tonnes, and through technical upgrades in 2026, we added 2,000 tonnes, bringing total capacity to 10,000 tonnes. We have no other expansion plans for now, and future moves will depend on market demand growth and supply-demand conditions."
Wasion Lithium told reporters, "We currently have no new mass production capacity, but we have adjusted our original plan to build a 60,000-tonne VC project in two phases to a single-phase construction, with a total investment of 1.6 billion yuan. It is still in the civil engineering stage. New chemical capacity approvals involve complex processes, and since VC involves hazardous chemical production, environmental and safety regulations are strict, leading to long project construction periods."
Large-scale expansion also increases financial pressure. According to the company's announcement, the project may put short-term pressure on cash flow, and if funded through bank loans, it could face higher financing costs.
The capacity expansion cycle depends on multiple factors. Fuxiang Co Ltd noted, "Preparing for new factories, environmental assessments, and equipment takes a very long time. New production lines usually require 1 to 3 years, while technical upgrades for expansion have a relatively shorter cycle."
Notably, companies have reduced long-term price-locked orders. Fuxiang Co Ltd stated that due to significant price volatility, it generally avoids signing long-term contracts, and downstream customers remain highly accepting of price increases.
Baichuan Yingfu predicted, "In the fourth quarter, as new capacity comes online and ramps up, effective supply will increase, easing spot shortages. The VC market price is expected to stabilize at 150,000 to 170,000 yuan per tonne. By 2027, as new capacity continues to ramp up, the supply-demand gap narrows, new production processes lower costs, and downstream price pressure increases, the mainstream price range is expected to drop to 100,000 to 140,000 yuan per tonne."
This round of VC market activity shows that short-term supply disruptions amplify market sentiment, bringing electrolyte additives back into the capital market spotlight. However, as rising prices may again stimulate capacity expansion, avoiding a repeat of the price-surge, expansion, oversupply, and price-decline cycle will determine the future trajectory of the VC industry.
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