(Yicai) Jan. 6 -- Shenghua New Material, a Chinese supplier of high-quality lithium iron phosphate cathode materials backed by battery giant Contemporary Amperex Technology, plans to invest CNY8.7 billion (USD1.2 billion) to expand its production capacity.

Shenghua will build three new facilities in Ordos in Inner Mongolia Autonomous Region, one with an annual production capacity of 500,000 tons of high-end LFP for energy storage and the other with an output of 600,000 tons of ferrous oxalate per year, the firm's shareholder Fulin Precision announced yesterday.

Moreover, Shenghua will team up with local partners in Ordos to establish a joint venture factory to produce 400,000 tons of oxalic acid annually. Shenghua will hold a 40 percent stake.

LFP is a key raw material for the cathode materials of energy storage and power batteries. Ferrous oxalate is a raw material for the production of LFP, and oxalic acid is used to produce ferrous oxalate.

This investment, which was Shenghua's second large-scale LFP capacity expansion plan in about three months, aims to better meet the growing demand for battery materials driven by the construction of energy storage stations, Fulin noted.

Last October, Fulin announced that Shenghua would collaborate with local partners in China's southwestern Sichuan province to invest a total of nearly CNY6 billion to build two new high-tap-density LFP factories, with a combined capacity of 525,000 tons.

The surge in demand for LFP batteries in the energy storage market is prompting Chinese lithium battery material suppliers to enhance their production capacity for cathode materials. For example, Shenghua's peer Jiangsu Lopal Tech said in a statement on Jan. 4 that it would invest CNY2 billion to hike its annual output capacity of high-end LFP by 240,000 tons.

Shenghua is a core supplier of LFP cathode materials for CATL. To assist its product supply capacity, CATL has provided financial support for its day-to-day operations and capacity expansion plans since March last year, through equity investments and advance payments.

Notably, a capital increase plan announced at the end of September last year is expected to further hike CATL's stake in Shenghua to 51 percent.

Fulin's shares [SHE: 300432] were trading down 1.3 percent at CNY17.61 (USD2.52) as of 1.50 p.m. today, after opening 2.8 percent up. CATL's stock [SHE: 300750] fell 1.4 percent to CNY372.31 (USD53.31).

Editor: Futura Costaglione