Supply-Demand Dynamics Shift: Traditional Industrial Acid "Phosphoric Acid" Rides the New Energy Wave, Price and Capacity Linkages Strengthen

(Financial News Network, October 26, 2023) The market for phosphoric acid, a long-standing fundamental raw material for fertilizers, food additives, and industrial cleaners, is undergoing a profound and quiet transformation. Fueled by the explosive growth of the global new energy industry, particularly for lithium iron phosphate (LFP) batteries, this traditional bulk chemical is being injected with new momentum. Its price fluctuations and capacity planning are becoming increasingly intertwined with the lithium battery supply chain.

From Fields to Wheels: A Historic Shift in Demand Structure

Phosphoric acid is the core intermediate product of the phosphorus chemical industry. Historically, its demand foundation was firmly tied to the agricultural sector, with approximately 70% used to produce phosphate fertilizers like MAP and DAP. However, this structure has been reshaped over the past three years.

"According to the latest industry data, over 35% of China's apparent consumption of phosphoric acid now flows into the new energy materials sector, a figure that was less than 10% in 2020," pointed out a lead chemical analyst at a top securities firm. The driver of this massive change is the surging demand for downstream lithium iron phosphate (LFP) cathode material. Due to its advantages in safety, cost, and cycle life, LFP has seen its market share continuously rise in the electric vehicle and energy storage battery markets, becoming a mainstream technology for power batteries.

Enhanced Price Linkages and Vertical Integration Trend

The surge in demand has directly impacted phosphoric acid's market price and industrial logic. Traditionally, its price was primarily influenced by upstream raw material costs (like phosphate rock and sulfur) and seasonal agricultural demand. Now, its price curve shows a significant correlation with the production and installation data of LFP batteries.

"To understand the phosphoric acid market now, you not only have to watch the moves of traditional giants like Yuntianhua and Guizhou Phosphorus, but also closely monitor the battery shipment data from CATL and BYD, as well as the capacity expansion progress of cathode material manufacturers like Hunan Yuneng and Dynanonic," stated a seasoned chemical products trader.

To stabilize supply chains and control costs, vertical integration between downstream battery giants and upstream phosphorus chemical companies is accelerating. For instance, leading phosphorus chemical companies, leveraging their owned phosphate rock resources and phosphoric acid production capacity, are extending downstream to build lithium iron phosphate and LFP production lines. This creates an integrated "Phosphate Rock - Phosphoric Acid - Lithium Iron Phosphate - LFP Battery"产业链, aiming to secure core competitiveness.

Capacity Race Begins, Highlighting Environmental and Resource Constraints

Facing this certain demand growth, a new round of competition for expanding phosphoric acid and related material capacity has begun. Not only are traditional phosphorus chemical companies increasing investments, but some cross-industry players are also attempting to enter. However, new capacity faces dual constraints: stringent environmental policies and the scarcity of phosphorus resources.

As the world's largest producer of phosphate rock and phosphoric acid, China has continuously implemented policies in recent years such as "production determined by slag discharge" for phosphate mines and upgraded environmental safety standards. This has raised the barriers for approval and construction of new capacity. Furthermore, the long-term supply security of high-grade phosphate rock, a non-renewable strategic resource, is also drawing industry attention.

Future Outlook: Advancing Amid Volatility, Moving Up the Value Chain

The market generally anticipates that the phosphoric acid market will maintain a tight balance for a considerable period. The price center is expected to be higher than in the era of traditional demand, with increased volatility. The core of industry competition will shift from pure scale competition to competence in resource security, cost control, degree of supply chain integration, and technical prowess in extending into higher value-added products.

"The story of phosphoric acid has transformed from a typical cyclical chemical narrative into a growth story overlaid with the dual logic of 'food security' and the 'energy revolution'," concluded the aforementioned analyst. "Its future trajectory will serve as a key slice for observing how traditional industries integrate and resonate with emerging strategic sectors."