【Negative Electrode Materials Market】Is the September peak season approaching?

At the beginning of September, the negative electrode materials industry enters its traditional peak season. However, recent developments in the new energy vehicle and power markets have shown limited increases in demand and transactions. Further explore the graphitized petroleum coke market. The energy storage market is showing positive demand trends, while the digital and small power markets continue to maintain stable demand. Downstream demand remains modestly uplifted, and it raises questions about how the negative electrode materials market will perform in September.

In terms of production capacity, as of August 31st, the production capacity of negative electrode materials is approximately 1.255 million tons. Apart from capacity expansion by leading companies, new manufacturers of negative electrode materials are also rapidly expanding their production capabilities to capture market share. This results in an increasing supply of negative electrode materials and heightened competition in the market.

In terms of production volume, the overall negative electrode market has shown some improvement in terms of production activity, mainly driven by fulfilling existing orders. Some leading enterprises have increased their production plans, and downstream demand is slowly recovering. This has led to a slight increase in order volumes in the negative electrode market, with industry sentiment gradually turning positive and increasing market confidence. It is expected that supply will continue to increase in the fourth quarter, but considering the gradual release of new production capacity, the utilization rate may decline.

In terms of prices, negative electrode material prices experienced a fluctuating downward trend in the first half of the year. Currently, there is no strong support from the raw material side, but there is stable demand in the power and energy storage markets. However, due to cost considerations, there is downward pressure on pricing throughout the supply chain. Short-term expectations for the negative electrode materials market suggest price stability as the primary trend.

Shangtai Technology released its 2023 interim report, indicating that the company achieved revenue of CNY 1.967 billion in the first half of the year, a 10.52% year-on-year decrease. The net profit attributable to the company's shareholders was CNY 405 million, a 41.53% year-on-year decrease. The net profit for Q1 was CNY 230 million, and based on this calculation, Q2's net profit was CNY 175 million, a 23.91% decrease.

The 41.53% year-on-year decrease in net profit in the first half of the year can be attributed to two main factors. Firstly, product sales prices decreased, resulting in a decline in product gross profit margins. Secondly, the company's production and operational scale significantly increased in the latter half of the previous year with the start of operations at the Beisu headquarters and the Shanxi Phase III projects. Consequently, operating costs and expenses increased significantly.

The company's interim report also revealed that the negative electrode materials industry has been releasing new production capacity gradually, leading to a structural overcapacity issue with intense market competition. In this context of supply and demand reversal, the overall operating rate of the negative electrode materials industry is not high, and downstream customer demand recovery is slow. This has led to significant downward pressure on the average selling prices and a general slowdown in industry profit margins compared to the previous year.

Shangtai Technology primarily engages in the independent research, development, production, and sale of artificial graphite negative electrode materials and carbon products, which are mainly used in power and energy storage batteries. According to the semi-annual report, the revenue contribution for the first half of the year from negative electrode materials and carbon materials was 82.44% and 12.22%, respectively.

For the second half of the year, Shangtai Technology is hopeful about the demand coming from the energy storage market. The semi-annual report mentions that the company's share of shipments for negative electrode materials used in energy storage batteries has increased. During an investor relations event on June 20th, the company mentioned that shipments of negative electrode materials for energy storage batteries were gradually increasing in the second quarter and are expected to see a significant increase in the third quarter, leading to a noticeable increase in the share of negative electrode materials used in energy storage batteries.

Xiangfenghua, despite increasing revenue, saw a 25.25% decrease in net profit in the first half of the year, as reported in its 2023 interim report released on August 30th. The company achieved CNY 993 million in revenue, a 5.37% year-on-year increase, while the net profit attributable to shareholders of the listed company was CNY 69.428 million, a 25.25% year-on-year decrease.

When asked about the reasons for the year-on-year decline in net profit, Xiangfenghua stated that the increase in financial expenses, nearly doubling, and a significant increase in net cash flow from investment activities, nearly tripling, were the primary contributing factors. The increase in financial expenses was mainly due to higher interest expenses on bank loans resulting from the expansion of the company's business scale. The increase in net cash flow from investment activities was primarily driven by the acquisition of fixed assets to expand production capacity.

Regarding the improvement in gross profit margin for the main business of negative electrode materials, as indicated in the semi-annual report, the company's revenue from negative electrode materials for the reporting period was CNY 987 million, a 5.30% year-on-year increase, with a gross profit margin of 21.72%, a 1.61% year-on-year increase.

Xiangfenghua explained that as graphite capacity gradually increased, the company's self-sufficiency in graphite improved, leading to a significant decrease in the price of externally sourced graphite compared to the previous year. This effectively lowered the cost of graphite. Additionally, lower raw material prices contributed to the improvement in the gross profit margin of the main business.

Shanshan Corporation (600884.SH) released its 2023 interim report, revealing that it achieved CNY 9.468 billion in revenue for the first half of the year, with a net profit attributable to shareholders of the listed company of CNY 1.013 billion and a non-deductible net profit of CNY 588 million.

In a quarter-on-quarter comparison, the performance of the negative electrode materials segment improved significantly in the second quarter. The report noted that sales volume of negative electrode materials in the second quarter increased by over 40%, driving a 37.35% quarter-on-quarter growth in revenue for the negative electrode materials segment.

The factors driving the performance, as mentioned in the semi-annual report, include continued growth in demand for power and energy storage lithium batteries in the first half of the year, especially in the rapidly growing energy storage market. Furthermore, the company's competitiveness in the negative electrode materials market has further increased.

In the second half of 2023, the Chinese lithium battery negative electrode materials market is expected to show a stable and upward trend for several reasons:

1. Various regions have successively introduced subsidy policies for the purchase of new energy vehicles, which, to a certain extent, promote the recovery of the automotive market. In addition, the policy of promoting new energy vehicles in rural areas is expected to boost consumer confidence, stimulate automotive consumption growth, and drive market demand for negative electrode materials. (Positive)

2. Energy storage support policies are continuously strengthening, and the cost of photovoltaic and wind power generation is consistently decreasing. The energy storage lithium battery market is entering an upward development phase, with energy storage batteries gradually increasing their share of the negative electrode materials market. (Positive)

3. Some companies, in pursuit of cost reduction and efficiency improvement, have relaxed the sulfur content of petroleum coke, shifting towards medium to high sulfur petroleum coke. Additionally, specialized negative electrode coke has emerged in the needle coke segment, contributing to a certain degree of cost reduction for negative electrode material manufacturers. (Positive)

4. As new projects are progressively commissioned, competition in the negative electrode materials market is becoming increasingly intense. In the short term, it is challenging to alleviate the situation of price competition, and negative electrode material production enterprises in the industry are facing significant pressure to "reduce costs and increase efficiency." (Negative)

Overall, the downstream demand for lithium battery negative electrode materials in China is showing a positive trend in the second half of 2023. Anticipated additional production capacity will be introduced to the market, leading to a continuous increase in the supply of negative electrode materials. The negative electrode materials market is expected to perform better in the second half of 2023 compared to the first half. Follow us and keep an eye on the negative electrode market information.