The text below is an edited version of content by Sam Adham and Linda Zhang from the CRU Breakfast Companion 2026, the publication that accompanies our annual CRU Breakfast event, with commodity outlooks and analysis. For the full version, download the Companion or speak to a CRU expert.
The short answer: because Western and Chinese restrictions on intellectual property (IP) and investment are keeping production of critical and advanced materials firmly localised in China, the incumbent and dominant industrial base.
The industry itself is booming, with battery energy storage and a recovery in electric vehicle (EV) demand driving a surge in battery materials production. But projects trying to expand overseas are squeezed between both sets of rules, and this has already started to stall localisation efforts in many of them. For battery raw materials markets, that matters because if midstream precursor and cathode production does not globalise, neither will the consumption of metals and chemical salts.
China remains the largest region for lithium, nickel and graphite demand in cathode (CAM), precursor (pCAM) and anode (AAM) active material production through 2035. Source: CRU Battery Value Chain Service.
Why Are Battery Materials Producers Expanding Outside China?
Supply chain risk concerns and other strategic motives are driving them. These have prompted Chinese-origin producers to expand overseas and new Western companies to enter the market, particularly to capitalise on a bottleneck in critical materials such as LFP cathode and synthetic graphite anode.
The need to onshore has emboldened them even where production costs overseas are higher. In Europe, Chinese companies are the main investors in new battery supply chain capacity, especially for LFP cells and electrode materials.
Why Are Overseas Battery Supply Chain Projects Stalling?
Projects are stalling because they are squeezed between two sets of rules. Western regulations mandate technology and ownership transfers, while Chinese countermeasures tighten limits on outbound technology, equipment and investment.
The US has added tariffs and material sourcing rules, and the EU's draft Industrial Accelerator Act could make investment harder for Chinese companies. China has responded with technology export controls on critical materials, limits on sharing know-how and equipment, and the power to intervene when firms try to dilute ownership of overseas operations. In CRU's view, this response exposes how much global supply chains rely on Chinese manufacturing.
Can Chinese Battery Materials Producers Restructure to Keep Investing Overseas?
Some can, depending on the technology. Ternary cathode material is not on China's export restriction list, so dilution has been relatively straightforward for producers such as Ronbay. It said it would cut its stake in its overseas project to just below the 25% ownership threshold in the US prohibited foreign entity (PFE) rules. However, it recently moved to a lease-first strategy after its attempt at an equity ownership sale failed to garner enough investors.
LFP is on the list, so giving up control needs government approval. Changzhou Liyuan (Lopal) secured approval to produce LFP abroad before the export controls were imposed, and operates the only active LFP project outside China, in Indonesia. However, its future expansions would be under scrutiny.
The restrictions are not a blanket ban, though. International cooperation remains possible through compliant but limited channels, and it is reasonable to expect Chinese companies to keep investing in overseas projects.
Can Korean and Western Battery Manufacturers Reduce Their Reliance on Chinese Producers?
Only to a limited extent. Korean and Western manufacturers are starting to build alternatives to Chinese batteries, but they remain largely reliant on Chinese producers for the know-how, equipment and industrial capacity behind LFP cathode, ternary precursor and graphite anode.
Korean cell makers are pivoting to LFP energy storage as protectionism reshapes the economics of battery production.
What Does Protectionism Mean for Battery Raw Materials Demand?
It keeps demand concentrated in China. Chinese companies remain the largest buyers and importers of lithium, nickel, cobalt, manganese and graphite materials. CRU's projections show China still the largest region for lithium, nickel and graphite demand in 2035.
While geopolitical tensions persist, production of these materials will stay firmly localised in China, and companies elsewhere will take far longer to industrialise. For now, battery raw materials demand remains concentrated where the midstream is: in China.
Download the CRU Breakfast Companion for the full analysis and eight commodity outlooks, including lithium, nickel and cobalt, or speak to a CRU expert.
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