China Merchants Securities has released a research report indicating that domestic VC average prices have surged recently, climbing back above RMB 200,000 per ton following a mid-year pullback. On the demand side, the expansion of lithium battery shipments, combined with a higher VC consumption rate per unit driven by new national safety standards for power batteries, is expected to sustain robust global demand growth. On the supply side, while nominal VC capacity is expanding rapidly, the complexity of second-generation production processes is likely to limit actual effective supply release. The brokerage anticipates that the VC shortage will persist, with significant upside potential for prices, and recommends continued attention to this sector.
VC prices return to an upward trajectory, signaling a clear recovery in industry momentum
As of August 14, 2026, the domestic average VC price has reached RMB 225,000 per ton, reflecting a surge of over 70% since June. This acceleration in price increases has been notably influenced by factors such as the suspension of production at Suzhou Huayi's 10,000-ton facility in Dalian. Over the long term, VC prices have undergone a complete cycle, peaking in 2021, declining steadily from 2022 to 2025, and bottoming out with a reversal at the end of 2025. During July-August 2025, the average price briefly fell to around RMB 46,000 per ton, before rebounding sharply amid an explosion in energy storage demand and production halts by leading manufacturers for maintenance. After a phased correction in the first half of 2026, prices have once again surged since June. The current price is now approximately four times higher than the 2025 low, and the upward price channel remains intact.
Expanding lithium battery shipments and higher VC consumption per unit to drive sustained global demand growth
Global lithium battery shipments are projected to reach approximately 3,600 GWh by 2027, representing a compound annual growth rate of about 26% from 2025 to 2027. Within this, the share of energy storage batteries is expected to rise from 27% to 31%. Beyond overall volume growth, the new national safety standards for power batteries are pushing for higher VC addition ratios. It is estimated that VC addition ratios for power LFP and ternary systems will increase by approximately 33% and 67%, respectively. For energy storage batteries, which demand superior cycle life and long-term stability, the VC addition ratio in LFP systems is projected to rise by about 10%. Combined with the increasing penetration of LFP batteries and the growing share of high-VC-consumption energy storage cells, the industry average VC consumption per unit is expected to climb from 30 tons/GWh to 38 tons/GWh. This translates to a projected CAGR of approximately 42% in global VC demand from 2025 to 2027, significantly outpacing industry growth.
High technical barriers for new capacity expansion to limit effective supply release
In recent times, leading companies have rapidly expanded nominal capacity by securing major customers, with players such as Genyuan, Huasheng, and Yongtai all announcing expansion plans ranging from 20,000 to 100,000 tons. Additionally, second-tier manufacturers are primarily focusing on technical upgrades to reduce costs and improve efficiency, achieving capacity increases of 20-30%. This round of expansion largely involves a shift from first-generation long-flow processes to second-generation short-flow technologies, which offer cost reductions of approximately RMB 15,000-20,000 per ton compared to the first generation. However, industry feedback indicates that second-generation processes are technically challenging, leading to slower capacity release. The brokerage estimates that global nominal VC capacity could reach 400,000 tons by 2027, but actual effective supply is projected to be only around 110,000 tons, indicating limited overall supply release.
VC shortage to persist, offering substantial price and profitability upside
Industry feedback suggests robust downstream demand, with VC already experiencing a supply-demand gap that is likely to intensify. The brokerage projects that if supply release falls short of expectations, the market could shift from a tight balance to a deepening shortage starting in the second half of 2026. Given that VC accounts for a relatively low proportion of cell value—approximately 1.9% even at current prices—downstream players have a strong capacity to absorb price increases. Against a backdrop of surging demand and sluggish effective supply release, VC prices are expected to maintain strong support, with further potential to enhance price and profitability flexibility. Continued monitoring is advised.
Stocks to watch include: Huasheng Lithium, Haike New Source, Rike Chemical, Tinci Materials, Yongtai Technology, Fulin Precision, and Fuxiang Co., among others.
Risk factors: Downstream demand falling short of expectations, and risks related to faster-than-expected new capacity commissioning or ramp-up.