Chuanfa Longmang Scraps 100,000-Ton LFP Expansion Amid Industry Overcapacity and Financial Pressure

Chuanfa Longmang has officially withdrawn plans to significantly expand its lithium iron phosphate (LFP) production capacity, highlighting the growing challenges facing China’s battery materials industry. The company’s board had originally approved the project in October 2023, proposing the construction of a supporting facility with an annual capacity of 100,000 tons of LFP at Mianzhu Xinshi Industrial Park. To implement the investment, the company intended to establish a wholly owned subsidiary that would oversee the development and operation of the new production base.

However, on June 26, 2026, Chuanfa Longmang announced that it would terminate the establishment of the subsidiary and cancel all planned investments related to the additional LFP capacity. Importantly, the company noted that no substantial construction work, equipment procurement, or major capital expenditure had been undertaken since the project received approval. As a result, the cancellation did not create significant sunk costs or impairment losses.

While the company cited changing market conditions and the need to optimize resource allocation as the primary reasons for the decision, the move also reflects deeper operational and industry-wide concerns. One major issue is the poor utilization of the company’s existing facilities. Chuanfa Longmang already operates 60,000 tons of LFP capacity along with 100,000 tons of supporting phosphoric acid capacity. Yet in 2025, the utilization rate for its LFP facilities was only 20.83%, while the phosphoric acid unit operated at just 26% of capacity. More than 70% of the production lines remained idle for long periods, and ongoing depreciation and maintenance expenses continued to weigh on profitability. Under these conditions, adding another 100,000 tons of capacity without secured downstream demand would likely have increased financial losses immediately after commissioning.

The company is also facing mounting pressure on cash flow from both its traditional phosphorus chemicals business and its newer lithium battery materials segment. Rising sulfur and phosphate rock prices have squeezed margins in the core phosphorus business. Although revenue increased in 2025, net profit attributable to shareholders declined by more than 22% year-on-year. The first quarter of 2026 showed a similar pattern: sales continued to grow, but profitability weakened further and operating cash flow turned negative. With both major business segments under pressure, financing a lithium battery project requiring investment of more than RMB 10 billion became increasingly difficult.

Another challenge is Chuanfa Longmang’s relatively weak integration within the battery materials supply chain. The company’s strengths lie in phosphate rock resources and agricultural phosphate fertilizers, but it lacks in-house production of key lithium battery precursors and has limited access to premium battery manufacturers. Dependence on externally sourced high-purity phosphoric acid and lithium carbonate raises production costs compared with large integrated competitors, reducing the likelihood of achieving a sustainable cost advantage even if the expansion had proceeded.

The cancellation also reflects broader problems across China’s LFP industry. During the past two years, many companies from the phosphorus chemicals and titanium dioxide sectors rushed into LFP investments, driving planned national capacity above 5.3 million tons. In contrast, effective global demand for 2026 is expected to reach only about 3.1–3.4 million tons, leaving the industry with a relatively low overall operating rate.

At the same time, the market has become increasingly polarized. Advanced LFP products designed for fast charging and high energy density continue to enjoy strong demand, while lower-end products for conventional power and energy storage applications face intense oversupply. Aggressive price competition has sharply reduced processing margins, causing many cross-sector entrants to struggle financially soon after launching production.

Regulators in several regions have also begun tightening approvals for new phosphorus and lithium battery projects. As a result, capacity reduction, project delays, and expansion cancellations are becoming more common. Chuanfa Longmang’s decision is therefore more than a company-specific adjustment; it represents a significant signal that the LFP industry is entering a period of rational consolidation and more disciplined investment behavior.

Impact on Products and ChemAnalyst Price Outlook

Chuanfa Longmang’s decision to cancel its planned 100,000-ton lithium iron phosphate (LFP) capacity expansion reflects a broader industry shift toward disciplined investment amid persistent oversupply. In the near term, the move will tighten expectations for future LFP supply growth rather than reduce current availability, as the project had not yet entered construction. This may provide modest support to LFP producers by preventing additional excess capacity from entering an already saturated market. For chemical commodities tracked by ChemAnalyst, the immediate price impact is expected to be limited but mildly supportive. Demand for upstream raw materials such as phosphoric acid, lithium carbonate, and iron phosphate may soften marginally due to the cancelled project, while the reduction in anticipated oversupply could help stabilize processing margins. Prices of phosphorus-based chemicals are likely to remain influenced primarily by fertilizer demand and raw material costs, whereas lithium battery materials may witness gradual price stabilization as capacity rationalization improves the long-term supply-demand balance across the sector.