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Major Policy Issued in Lithium Battery Industry to Accelerate the Elimination of Low-End Redundant Capacity

published: 2024-05-11 17:20

New Regulations to Streamline Lithium-ion Battery Industry and Promote High-Quality Development

On May 8th, according to a message on the website of the Ministry of Industry and Information Technology (MIIT), in order to further strengthen the management of the lithium-ion battery industry and promote its high-quality development, the Electronic Information Department of MIIT has revised the "Lithium-ion Battery Industry Specification Conditions (2021 Edition)" and the "Lithium-ion Battery Industry Specification Announcement Management Measures (2021 Edition)" to form the "Lithium Battery Industry Specification Conditions (2024 Edition)" and "Lithium Battery Industry Specification Announcement Management Measures (2024 Edition)" (hereinafter referred to as the "Draft for Comments"), which is now openly soliciting opinions. The "Draft for Comments" indicates that these specification conditions are guiding documents that encourage and guide the technical progress and standardized development of the industry, and they do not possess the pre-requisites or compulsion of administrative approval. The "Draft for Comments" provides guidance and specific recommendations in several major areas, including industrial layout and project establishment, production and operation as well as technological level, product performance, safety and quality management, resource comprehensive utilization and ecological environment protection, health and social responsibility, and supervision and management. These guidelines are applicable to enterprises producing lithium batteries, cathode materials, anode materials, separators, and electrolytes.

Li Weifeng, the head of the advanced energy storage industry chain in Wangcheng District of Changsha, Hunan, said in an interview with the Securities Daily reporter: "The 'Draft for Comments' has optimized the technical standards for lithium batteries and their main materials, guiding industry enterprises to reduce manufacturing projects that simply expand production capacity, avoiding disorderly competition, which will promote the healthy development of the industry.

The policy aims to address overcapacity

In recent years, due to optimistic expectations for industry development, various capitals have poured into the lithium battery sector, leading to a rapid expansion of the entire industry chain's production capacity. A research report from AVIC Securities shows that from 2018 to 2022, the compound annual growth rate of production capacity expansion for each link in the lithium battery industry chain was as follows: upstream lithium resources at 33.6%, midstream materials at 57.1%, power batteries at 66.8%, and downstream new energy vehicles at 53.5%.

The mismatch between production capacity expansion and terminal demand has led to a phase of overcapacity, and in the past two years, the industry has initiated an "involution-style" inventory clearance. Against this backdrop, the operational conditions of enterprises throughout the entire industry chain have been affected to varying degrees. To guide the industry to accelerate transformation and structural adjustment and to promote the healthy development of China's lithium battery industry, the "Draft for Comments" has proposed a "one reduction, one increase" planning recommendation in terms of production capacity layout, aiming to reduce redundant capacity construction and raise the threshold for new entrants. In terms of production capacity layout and project establishment, the "Draft for Comments" suggests that lithium battery enterprises and projects should conform to national industrial policies and relevant industrial planning and layout requirements. It also proposes guiding enterprises to reduce manufacturing projects that merely expand production capacity, and to enhance technological innovation, improve product quality, and reduce production costs.

Regarding production and operation, technical conditions, and process levels, the "Draft for Comments" also provides several guiding opinions. For instance, enterprises should allocate no less than 3% of their main business revenue to R&D and process improvement each year; and the actual output in the year prior to application should not be less than 50% of the actual production capacity for that year. Currently, some enterprises' actual output does not meet the 50% condition, which means that the threshold for project admission for many enterprises will be raised; for example, for cathode and anode enterprises, the standard for magnetic foreign objects should reach the level of 10ppb, which requires a very high level of control and further raises the process requirements," said Zhang Jiafeng, a professor at the School of Metallurgy and Environment of Central South University, in an interview with the Securities Daily.

Li Weifeng stated that the "Draft for Comments" has three significant implications for the high-quality development of the lithium battery industry: "Firstly, it helps to address the issue of overcapacity. Secondly, it is conducive to enhancing international competitiveness. Enterprises will increase R&D investment to meet new technical standards, promoting innovation in lithium battery technology, and downstream enterprises will also choose higher-quality raw material suppliers, thereby enhancing the competitiveness of Chinese lithium battery enterprises in the international market. Thirdly, it is beneficial for achieving green development. The rational control of production capacity and technological innovation will help promote the reduction of resource waste and environmental pollution in the lithium battery industry, achieving green development.

Leading Enterprises to Seize Development Opportunities

With the release of the "Draft for Comments," low-end redundant production capacity will be accelerated to be phased out, while leading enterprises with a first-mover advantage in the lithium battery industry and industrial clusters with forward-looking layouts will seize development opportunities. As the leading enterprise of lithium iron phosphate cathode materials, Hunan Yu Neng's domestic market share of lithium iron phosphate products exceeded 30% last year. When interviewed by a reporter from "Securities Daily," the company's Secretary, Wang Yongmei, summarized several advantages of the company: "Firstly, the company has an integrated advantage, with an integrated development concept of 'resources - precursors - cathode materials - recycling,' and has planned and laid out in each important link of the industrial chain. Secondly, the company has a technological innovation advantage, with distinct product differentiation and stronger bargaining power; thirdly, the company has the advantage of refined management, which helps the company to respond quickly to market conditions; fourthly, the company has a scale advantage, with high capacity utilization, which is conducive to reducing unit production costs, and at the same time, it has more bargaining power in the procurement link."

Long-term Lithium Science is one of the earliest enterprises in China engaged in the research and development and production of ternary cathode materials. Its market share of ternary cathode materials has always been in the first echelon of the industry in recent years. The company's Secretary, Zeng Ke, said to a reporter from "Securities Daily," "In the future, the company will continue to follow market development trends, improve product technological content, and continuously enhance profitability and market competitiveness." In addition, industrial parks that have planned and laid out in advance and formed lithium battery industry clusters will stand at the forefront of the industry. Li Weifeng said, taking Wangcheng Economic Development Zone (hereinafter referred to as "the Zone") as an example, the lithium battery industry is one of its leading industrial chains. "After the implementation of the new policy, it will help enterprises in the zone to further consolidate their market position. Next, the zone will focus on strengthening and supplementing the advanced energy storage industry chain, and encourage enterprises in the industrial chain to increase R&D investment, improve product quality, and achieve high-quality development.

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