[The Editors' Verdict] K-Batteries: The Key Variable Is Securing Raw Materials

According to market research firm SNE Research, South Korea's global market share of cathode materials, a core component of secondary batteries, was 20.2% in 2020, which is about one-third of China's share. Cathode materials, along with anode materials, play a role in storing electricity and determine the type and performance of batteries. Batteries consist of cathode, anode, separator, and electrolyte. Following cathode materials, anode materials are the substances that accept lithium ions coming from the cathode during battery charging. The separator prevents contact between the cathode and anode inside the battery, thereby preventing fires and other hazards.

As of last year, South Korea's global battery market share stood at 8.7% for anode materials, 11.9% for separators, and 8.1% for electrolytes, which is far behind China and Japan. However, the three domestic battery companies?LG Energy Solution, Samsung SDI, and SK Innovation?have experienced significant growth over the past decade. In addition to China, where the electric vehicle market is growing, they have established production bases in the United States, Poland, and Hungary. Nevertheless, for K-batteries to lead the global market, not only local production and supply but also smooth supply of raw materials such as lithium, nickel, and rare earth elements must be ensured. Above all, securing the supply of key components and raw materials used in batteries is crucial. If the supply chain is blocked, the industry can become powerless at any moment. The problem is that China controls these essential components and raw materials. If China weaponizes materials and raw materials, the domestic related industries will inevitably fall into paralysis. Looking at China's market share of core electric vehicle component materials: 62% of rare earth production for electric motors, and 75.8% of battery cathode intermediate products called precursors (a mixture of nickel, cobalt, and manganese). Furthermore, China holds more than 40% of the shares in Congo mines, which produce 70% of the world's cobalt.

According to the Korea Institute for Industrial Economics and Trade, South Korean battery companies' import dependence on China is 81% for lithium hydroxide, 87.3% for cobalt, and 100% for manganese sulfate. Last year, global electric vehicle sales reached 2.86 million units, with China accounting for 1.18 million units, or 41% market share. The United States accounted for 320,000 units, or 11%, making China's electric vehicle market 3.6 times larger than that of the U.S. In other words, demand is increasing, but there is a shortage of parts and raw materials needed for electric vehicle production.

Looking at the price changes of four key raw materials for cathode materials from Korea Resource Information Service as of July 28, cobalt prices rose 82% year-on-year to $28,750 per ton, nickel increased 42% to $19,583, manganese rose 32% to $1,455, and aluminum increased 49% to $2,516. Additionally, rare earth elements have unstable supply due to their uneven distribution. China controls 70-80% of the global rare earth market. Therefore, stabilizing the rare earth supply chain requires securing sources outside of China.

The strength of Korea's battery industry lies in its fast follower strategy, excelling in manufacturing capabilities and processes. Domestic battery companies have world-class cell component design capabilities, enabling economies of scale. The weakness is the increasing dependence on China for raw materials, which is causing Korea to lose cost competitiveness to China. Especially, if China, which monopolizes cathode and anode materials, turns hostile, it would pose the greatest threat. POSCO, which has a value chain for battery material production, established a cathode material plant in China with an annual capacity of 5,000 tons in 2019.

The current government is selling off copper, nickel, and cobalt mines secured through overseas resource development during the previous administration. Korea Resources Corporation is disposing of assets including the Cobre Panama copper mine in Panama and the Ambatovy nickel-cobalt mine in Madagascar, and in March sold its stake in the Santo Domingo copper mine in Chile.

Overseas resource development is a business that requires steady efforts over decades to yield results. If the government hopes for the success of the K-battery strategy, it should stop selling overseas mines and deeply consider how managing them can benefit national interests. The core of batteries is securing raw materials.

Kang Cheon-gu, Adjunct Professor, Department of Energy Resources Engineering, Inha University