Soochow Securities released a research report stating that phosphorus ore demand is expected to increase by 4.82 million and 6.12 million tons in 2025 and 2026, respectively, with energy storage as the primary driver. There remains a significant gap between planned and actual production capacity due to ramp-up periods and environmental safety constraints. The firm favors integrated enterprises with both phosphorus resources and lithium iron phosphate (LFP) production capabilities.
**Key Insights:** **Demand Side – Phosphorus Ore:** China’s phosphorus ore demand is projected at 113.2 million tons in 2024, rising to 118.02 million and 124.14 million tons in 2025 and 2026, respectively, reflecting net increases of 4.82 million and 6.12 million tons. Growth is driven by emerging sectors, offsetting declines in traditional demand. 1) **Emerging Demand:** Energy storage and power batteries are boosting the phosphorus chemical industry. The report forecasts incremental demand of 3.93 million and 4.31 million tons in 2025–2026, with LFP accounting for 3.64 million and 4.07 million tons, while lithium hexafluorophosphate contributes 290,000 and 240,000 tons. 2) **Traditional Demand:** Rising raw material costs have weakened phosphate fertilizer producers’ profitability, with output declining YoY in early 2025. A rebound in phosphate fertilizer demand is unlikely, while phosphate and phosphorus compound demand remains stable.
**LFP Demand:** China’s LFP demand is estimated at 2.14 million tons in 2024, surging to 3.25 million and 4.49 million tons in 2025–2026, driven by energy storage (incremental demand of 1.11 million and 1.24 million tons).
**Supply Side – Phosphorus Ore:** In 2024, China’s phosphorus ore capacity, effective capacity, and output stood at 194.47 million, 119.16 million, and 113.53 million tons, respectively. Projections for 2025–2026 show capacity reaching 217.32 million and 247.62 million tons, with effective capacity at 133.10 million and 151.58 million tons, and output at 123.07 million and 132.80 million tons (net increases of 9.54 million and 9.73 million tons). Environmental and safety factors continue to constrain supply.
**LFP Supply:** The LFP sector faces long-term overcapacity, dominated by LFP battery manufacturers. Effective capacity and output in 2024 were 4.26 million and 2.05 million tons, respectively, expected to rise to 4.99 million and 5.40 million tons (effective capacity) and 2.99 million and 4.32 million tons (output) in 2025–2026.
**Price Outlook:** Phosphorus ore capacity utilization was 58% (95% for effective capacity) in 2024. The market is expected to balance in 2025–2026, with utilization rates at 57%/54% (capacity) and 92%/88% (effective capacity). High-grade ore prices will remain firm, while low-grade ore may face slight pressure.
LFP supply-demand tension is anticipated, with effective capacity utilization rebounding from Q3 2025 (projected at 60% and 80% in 2025–2026 vs. 48% in 2024). Recovery in LFP battery producers’ profitability could revive sector sentiment.
**Investment Recommendations:** Top picks are ranked based on LFP market value/earnings elasticity and phosphorus resource integration: 1) **Power Equipment:** Companies with LFP and phosphorus ore assets, including Tianci Materials, Hunan Yuneng, and Zhongwei Co. 2) **Basic Chemicals:** Phosphorus accounts for ~45% of LFP costs. Integrated players with ore resources and planned capacity expansions stand to benefit most from price hikes. Key names include Chuanheng Holdings, Xingfa Group, Batian, Yuntu Holdings, Chuanfa Longmang, Hubei Yihua, Xin Yangfeng, LB Group, Stanley, Yuntianhua, Chuanjinnuo, and Kingenta.
**Risks:** Volatile product prices; slower-than-expected demand growth; excessive capacity releases in phosphorus ore/LFP; environmental and safety risks.
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