China copper foil: China copper-foil investors focus on HVLP execution as battery-foil pricing improves

Overview

This investor-feedback note examines China’s copper-foil supply chain, centering on whether AI-related HVLP demand can translate into reliable shipments and earnings and whether battery-foil profitability can continue to recover. UBS identifies improving processing fees and tighter utilization as supportive, while emphasizing execution and competitive risks.

Core views

UBS reports a sharp divergence in recent share performance across the AI copper-foil supply chain: Defu gained 15% month to date, while Mitsui Kinzoku fell 22% and Co-tech declined 8%. Discussions with more than 10 investors indicated continued confidence in AI-driven demand for high-voltage low-profile (HVLP) foil, but the debate has moved from demand potential to execution. Investors are testing actual HVLP shipments and yield progress, the credibility of 2027 volume and capacity targets, and whether battery-foil profit recovery can endure. For Defu, UBS notes August HVLP4 shipments of 73t and yield of about 60%. The company targets total HVLP shipments of 900–1,000t per month in 1Q27 and over 2,000t per month in 3Q27; its September target production was about 700t, close to Mitsui’s 730t target for 2H26. UBS argues that investors need to see sustained monthly volumes, a rising HVLP4 mix, stable yields, repeat orders and a corresponding margin contribution before the ramp is fully validated. It therefore identifies 3Q and 4Q results and later operating updates as the central checkpoints for both volume execution and earnings delivery. The battery-foil backdrop is improving. UBS industry checks suggest that major battery customers accepted processing-fee increases of about Rmb1,000–2,000/t effective from 4Q, following increases of around Rmb1,500–2,000/t at tier-two customers in 3Q. ICCSINO expects China copper-foil utilization to increase from 92% in 2026 to 98% in 2027, which UBS says could support further processing-fee upside through year-end or 1Q27. The longer-term issue is whether profitability can hold beyond 2027: existing producers have limited willingness to expand after years of losses, stretched balance sheets and unattractive returns, but capacity plans by leading battery manufacturers could ultimately cap further processing-fee increases. UBS retains Neutral ratings on Defu Technology and Nuode New Materials but sees earnings risks skewed to the upside. For Defu, the upside case is a faster HVLP shipment ramp; certification is already complete for HVLP1–4. For Nuode, the potential positive catalyst is successful HVLP4 vendor qualification, with certification for HVLP1–3 already completed. The report also flags the downside cases of slower qualification and shipments, more intense competition and price cuts, technology substitution, and weaker recovery in battery or HTE copper-foil demand.

Analysis framework

UBS synthesizes recent discussions with more than 10 investors, company operating milestones, industry checks on processing fees, and an ICCSINO utilization forecast. It links supply-demand conditions and pricing to profit recovery, then assesses company-specific earnings sensitivity through HVLP qualification, shipment volumes, yield and customer validation.

Methodology notes

• Industry AnalysisSupply-demand framework

  Copper-foil supply-demand and utilization analysis

  UBS uses expected utilization, producer expansion appetite and battery-manufacturer capacity plans to explain processing-fee direction and the durability of battery-foil profitability.

• Valuation methodsP/E and PEG Valuation

  PE multiple valuation for Defu

  The report states that Defu's price target is based on a price-to-earnings multiple.

• Valuation methodsPB valuation

  P/BV valuation for Nuode

  The report states that Nuode's price target is based on price-to-book value.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Defu Technology (301511.SZ)

  Covered copper-foil producer exposed to AI-driven HVLP demand and battery-foil processing-fee recovery.

  Strengths

  HVLP1–4 certification is complete; a faster-than-expected shipment ramp is identified as an upside risk.

  Weaknesses

  August HVLP4 shipments were 73t with yield around 60%, leaving execution against much higher 2027 targets to be proven.

  Comparison

  Defu gained 15% month to date, compared with Mitsui Kinzoku at -22% and Co-tech at -8%.

  Risks

  Slower qualification or shipment delivery, competitive price cuts, technology disruption and weaker battery-foil or HTE demand.

• Nuode New Materials (600110.SH)

  Covered copper-foil producer whose HVLP4 vendor qualification is a key earnings catalyst.

  Strengths

  HVLP1–3 certification is already complete; successful HVLP4 qualification is an identified upside catalyst.

  Weaknesses

  HVLP4 vendor qualification remains to be completed.

  Risks

  A worsening competitive landscape, copper-price fluctuations and faster-than-expected adoption of technologies including composite copper foil.

Key data

• Defu month-to-date share performance+15%Outperformed Mitsui Kinzoku at -22% and Co-tech at -8%.
• Defu August HVLP4 shipments73tReported with yield of around 60%.
• Defu HVLP shipment target900–1,000t/month in 1Q27; more than 2,000t/month in 3Q27Total HVLP shipment targets.
• Major-customer battery-foil processing-fee increaseRmb1,000–2,000/tEffective from 4Q, following Rmb1,500–2,000/t increases at tier-two customers in 3Q.
• China copper-foil utilization rate92% in 2026 to 98% in 2027ICCSINO forecast cited by UBS.

Impact & implications

UBS views the combination of higher battery-foil processing fees and rising utilization as supportive of a near-term profit inflection. For AI-related HVLP exposure, the key determinant is whether qualification, yield and customer orders convert ambitious shipment targets into recurring margin contribution.

Risks

• HVLP qualification progress or shipment delivery could be slower than expected.
• A weaker competitive landscape could lead to copper-foil price cuts.
• Technological disruption or faster adoption of composite copper foil could replace existing products.
• Battery copper-foil or HTE copper-foil demand could recover more weakly than expected.
• Commodity and currency volatility, EV regulations and climate-related policies could materially affect the sector.

What to watch

• Defu's 3Q and 4Q results and subsequent operating updates for monthly HVLP volumes, yield, HVLP4 mix, repeat orders and margin contribution.
• Progress toward Defu's 900–1,000t monthly HVLP target in 1Q27 and more than 2,000t monthly target in 3Q27.
• Nuode's HVLP4 vendor-qualification outcome.
• Whether battery-foil processing fees continue rising through year-end or 1Q27 and whether utilization reaches the cited 98% 2027 forecast.
• Battery-manufacturer capacity plans that could limit longer-term processing-fee increases.