China Merchants Securities released a research report indicating that robust downstream demand continues to drive lithium battery production scheduling beyond expectations. The firm estimates that Q3 2025 lithium battery production will maintain quarter-over-quarter growth of over 15%. Recently, the separator segment convened an "anti-involution" symposium, reaching consensus on maintaining sales prices above cost levels and avoiding blind capacity expansion, with several companies quickly responding by scaling back expansion plans.
The separator industry's CR4 exceeds 70%, with widespread losses across the sector currently, leaving only individual companies such as Xingyuan Material achieving marginal profitability. The industry's top two companies have reached full capacity utilization for wet separator production. Considering continued upward production scheduling in the coming months, leading enterprises are approaching a tight supply-demand balance.
**Leading Companies Face Capacity Constraints as Separator Industry Approaches Price Inflection Point**
In recent years, the separator industry has experienced continuous gross margin decline with widespread losses across the sector. In Q2 2025, only individual companies like Xingyuan Material remained profitable. During the first half of 2025, wet separator capacity utilization exceeded 70%, while dry separator utilization fell below 50%. Industry feedback indicates that the top two companies' wet separator capacity utilization has reached maximum levels. Tail-end companies, facing persistent losses in separator operations combined with industry self-discipline agreements, are expected to release limited additional supply.
Recently, both dry and wet separator segments have reached consensus to eliminate vicious competition below cost prices, avoid blind capacity expansion and redundant low-efficiency capacity construction, while respecting intellectual property protection. Industry companies have responded rapidly, reducing previously planned expansion projects. Given sustained downstream demand growth and tight supply-demand balance among leading companies, the separator industry may be approaching a price inflection point.
**Energy Storage Demand Exceeds Expectations, Lithium Battery Production Remains Strong**
Industry feedback indicates that leading battery cell manufacturers' energy storage production lines are operating at full capacity, with some energy storage cell prices beginning to rise. Global energy storage cell shipments reached 240 GWh in the first half of this year, representing 106% year-over-year growth. This primarily reflects the domestic energy storage market's transition from policy-driven to profit-driven growth, creating shortages of high-quality energy storage products. Internationally, U.S. large-scale storage demand remains rigid, while various storage application scenarios continue emerging across different countries. Considering leading energy storage manufacturers' substantial order books for this year and next, the current strong production scheduling momentum is expected to continue.
**High-Quality Separators May Drive Industry Concentration Improvement**
Energy storage and ultra-fast charging automotive applications impose higher safety and performance requirements on separators, with wet separator market share expected to increase further. Simultaneously, leading companies are developing next-generation coated separators, enhancing product competitiveness and potentially driving continued industry concentration improvement. Additionally, leading companies are actively positioning in solid-state batteries and other second-curve opportunities, potentially opening new growth avenues.
**Risk Factors** Downstream demand falling short of expectations; industry self-discipline agreement implementation below expectations.