Comparative review of two lithium ore industry clearance cycles

Industry dynamics: This round of lithium ore industry clearance may have already begun. If the shutdown of the Bald Hill project is taken as the signal marking the start of the previous clearance cycle, that cycle lasted from August 2019 to October 2020—approximately 15 months. If the shutdown of the Finniss Australian mine on January 5, 2024, serves as the signal for this round, other prominent Australian mines—including Greenbushes and Mt. Cattlin—have also announced plans to adjust production or sales volumes. Meanwhile, several A-share lithium mining companies have reported losses for two consecutive quarters, suggesting that this round of lithium ore industry clearance may indeed have commenced. Investment perspective: Given that several major Australian mines have halted or reduced output since early 2024—and that leading industry players have posted quarterly losses—we believe the current industry clearance process has likely begun. Moreover, prior to this round’s shutdowns/reductions, the ratio of lithium carbonate price to cash cost stood higher than in the previous cycle, and mining firms hold more cash on their balance sheets. This implies companies are more inclined toward proactive, early-stage production cuts aimed at supporting prices—a trend likely to prolong the clearance cycle. Consequently, the bottom for lithium carbonate prices may settle above the 70,000–80,000 RMB/ton range estimated by cost-curve analysis.

The razor-thin profit dilemma behind CMOC New Energy’s 9.3-billion-RMB revenue: Why did revenue surge 68% yet net profit margin remain below 3%?

Yet a closer reading of this financial report reveals an intriguing detail: revenue approaches 10 billion RMB, while net profit falls short of 230 million RMB. Calculated accordingly, the company’s net profit margin stands at merely 2.44%. What does this mean? For every 100 RMB of products sold, less than 2.5 RMB remains after deducting all costs and expenses. In manufacturing, such profitability can only be described as “paper-thin.” 01 “Revenue growth without profit growth” amid industry recovery First, consider the key figures. According to its earnings release, CMOC New Energy achieved total operating revenue of 9.34 billion RMB in 2025, up 68.62% year-on-year; attributable net profit reached 228 million RMB, turning from loss to profit; and adjusted net profit totaled 219 million RMB—also achieving positive turnaround. In terms of sales volume, the company shipped approximately 115,500 tons of cathode materials in 2025, an increase of roughly 62.68% year-on-year. Volume growth was thus the primary driver behind revenue expansion. Yet the problem lies squarely in profitability. A net profit margin of 2.44% is typified in manufacturing as “low-margin.” More notably, the company explicitly stated in its announcement: “Deferred income tax expenses significantly impacted net profit.” The subtext here is clear: absent favorable tax adjustments, actual operating profit could be even lower than the reported 228 million RMB. 02 Three core reasons behind “revenue growth without profit growth” Amid a 68% revenue surge, why has net profit remained stubbornly stagnant? Drawing upon disclosed data and historical financial reports, we identify the following three fundamental causes: First, low gross margin. In Q3 2025, CMOC New Energy’s gross margin stood at 6.95%. Though slightly improved from the 2024 trough, it remains historically low—indicating either weak cost control or insufficient product pricing power, neither of which has yet normalized. Second, operating expenses eroding profits. Revenue expansion typically accompanies rising operational expenditures. Particularly in the technology-intensive cathode materials sector, R&D investment is essential to maintain competitiveness. The company’s emphasis in its announcement on “leveraging technological expertise and refined operational management” indirectly confirms persistently high R&D and management spending. Although the earnings release does not disclose detailed expense breakdowns, Q3 2025 data shows an operating expense ratio of 7.38%. Applied to the full-year revenue of 9.34 billion RMB, total operating expenses amount to approximately 690 million RMB—directly compressing gross profit margins. Third, depreciation pressure stemming from asset expansion. As of end-2025, the company’s total assets reached 16.174 billion RMB, up 25.87% from the beginning of the year. Such asset growth typically reflects newly commissioned production capacity being capitalized. Once fixed assets are placed into service, substantial annual depreciation charges accrue—directly weighing on current-period profits. Contrasting this with owners’ equity growth of only 3.04%, it becomes evident that new assets were primarily financed through debt. Consequently, the associated financial costs and depreciation burdens are emerging as “invisible killers” of profitability. 03 The “dual-engine drive” of Hunan’s lithium battery industry leader Despite room for improvement in profitability, CMOC New Energy’s fundamentals are undergoing positive transformation.

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