(Yicai) April 15 -- Fengyuan Chemical’s shares surged after the Chinese firm said it will become the long-term supplier of a key material used in power batteries to a unit of BYD, adding that the deal will make the new energy vehicle giant its biggest client.

Fengyuan [SHE: 002805] closed 3.7 percent up at CNY11.76 (USD1.60)a share  today, after earlier jumping by as much as 7.4 percent. The broader Shenzhen market gave up 0.3 percent.

Fengyuan has signed an agreement to supply lithium iron phosphate cathode to Huizhou BYD Battery for three years until March 2028, the maker of chemical raw materials said late yesterday. The pair will also work together to improve the performance of cathode materials, it added.

Chinese carmakers such as BYD mostly use lithium iron phosphate batteries in their vehicles because they offer greater safety despite slightly lower energy density compared with ternary lithium batteries. BYD’s plant in Huizhou, which has an annual production capacity of two gigawatt-hours, mainly turns out prismatic lithium iron phosphate batteries for its NEVs.

Pricing and adjustments will be negotiated based on market conditions, Shandong province-based Fengyuan noted, without revealing the expected supply volume or the value of the deal. The deal will help consolidate and enhance Fengyuan’s industry position and overall competitiveness in the lithium battery materials field, it said.

Fengyuan can make 230,000 tons of cathode a year, with an additional 80,000 tons of capacity under construction, most of which is for LFP cathode, executives said at the end of last year. Ninety percent of its revenue of CNY597 million (USD82 million) in the first half of last year came from the cathode business, according to its 2024 semi-annual financial statement.

Editor: Futura Costaglione