(Yicai Global) April 20 -- As profit at Chinese suppliers of the raw materials needed to manufacture electric car batteries reaches new heights in the first quarter on the back of surging prices, an industry analyst warns that such profitability is not conducive to the healthy long-term development of the industry.

Out of 79 lithium materials producers that had disclosed their quarterly performance forecasts by April 19, all are predicting substantial gains. Sichuan Yahua Industrial Group is expecting the highest growth with profit forecast to leap over 15-fold in the three months ended March 31 year on year to as much as CNY1.2 billion (USD190 million), already dwarfing last year’s profit of CNY925 million.

Guangzhou Tonze Electric and Do-Fluoride New Materials are also anticipating very good returns, with profit likely to jump over eight-fold and seven-and-a-half times respectively.

Such profitability does not align with historical averages, a new energy industry analyst told Yicai Global. The soaring demand for raw materials and steady high spot prices over a short period of time are unsustainable in the long-term and are pushing up the price of end products.

Since March, almost 20 new energy vehicle manufacturers have hiked the price of 40 models by between CNY2,000 (USD312) and CNY30,000 (USD4,680), according to incomplete statistics. Most of the carmakers said the price increases were due to the soaring cost of raw materials.

The situation has attracted the attention of the Ministry of Industry and Information Technology. "We will moderately accelerate the progress of domestic resource exploitation, and cooperate with relevant departments to resolutely combat hoarding, price gouging and other forms of unfair competition, to push the price of NEV raw materials back to rational levels as soon as possible," a spokesperson said yesterday.

"In the long term, there is significant overcapacity in iron phosphate and lithium iron phosphate, especially for low-end production. We need to pay close attention to the supply and demand situation of upstream lithium resources. Once the cycle enters a downturn, the price drop will have a huge impact on the performance of related companies," the person said.

Editor: Kim Taylor