Battery materials: 22.5% demand growth, falling margins — why both are true

Seeing 'demand up 22.5%' next to 'leading margins falling' looks contradictory. It is the textbook shape of a capacity cycle: demand is growing, supply is growing faster.

Read the two numbers together

Global battery materials reached roughly USD 128 billion in 2025, up 22.5%. That is a healthy demand number. Yet over the same period, top-ten cathode utilisation fell to 68% and leading gross margin dropped from 21% in 2024 to 17.5%.

The reason is that capacity additions over the past three years ran at 40%–70% compounded rates, front-running demand by about two years. When growth decelerates to the mid-twenties, that capacity becomes the denominator in the utilisation ratio.

Where the profit went

Overcapacity does not mean industry-wide losses; it means profit is reallocated. Two directions matter this cycle.

First, toward whoever is ahead on the technology curve. Silicon anode penetration jumped from 8% to 14.5%, coated separator from 51% to 67%, and LiFSI loading is rising fast. Every penetration curve discounts one cohort of capacity and premiums another. Capturing that premium depends on completed process definition and customer qualification, not nameplate capacity.

Second, toward integration and resources. Producers with lithium salt to precursor to cathode integration protect part of their margin through input swings, while pure toll-processing segments lose bargaining power.

Storage rewrites the demand model

One habit worth correcting is treating power batteries as the only demand variable. Storage cell shipments grew 57% in 2025, well above power batteries, directly pulling LFP and electrolyte demand and lifting LFP's cathode share back to 32%.

Storage economics differ from passenger EVs: cycle life and levelised cost per kWh matter more, energy density less. Storage scale-up is therefore not simply good news for high-end NCM.

How to use these numbers

• To judge a materials company, first locate its products on a penetration curve — not its capacity scale.
• Falling margins are an industry-level phenomenon, not evidence that no individual company can win; divergence appears precisely in technology-transition windows.
• Supply-chain regionalisation (EU rules, US IRA) keeps raising localised cost, which the whole chain eventually shares. Model it separately in project economics.