[Battery Decoupling from China]③ China Sweeps Trillion-Won Scale Mining Purchases... Korea Faces Double Whammy with High Exchange Rates

Lithium Prices Quadruple... Nickel and Cobalt Also Soar
China Celebrates Amid Raw Material Price Surge with Mines

Korean Batteries Face Challenges Amid Global Supply Chain Shifts Like IRA and High Exchange Rates
Experts Call for Diversification of Battery Supply Chains Centered on China

Editor's NoteThe battery industry is facing strong aftershocks from the United States' Inflation Reduction Act (IRA). With only about four months left before its implementation, urgent measures are needed, but finding an immediate solution is not easy. This is because it is difficult to find alternatives to China, which has secured overwhelming influence in the battery materials market.

Battery companies have secured multiple supply chains outside China to diversify their supply chains, but they are concerned that risks may increase due to various variables such as volume supply and price fluctuations. As the global trend toward decoupling from China intensifies, and it remains uncertain whether the U.S. will step back considering practical limitations, this article examines the crisis and solutions faced by the domestic battery industry confronting the new supply chain reshuffling between the U.S. and China.

[Asia Economy Reporter Jeong Dong-hoon] In the global battery supply chain, China is the 'apex predator' of the food chain. It is hard to find any area in the entire battery manufacturing process?from processing and refining key minerals such as lithium, nickel, and cobalt, to synthesizing and assembling various components like cans, gaskets (which act as battery lids), and copper foil?that is not influenced by Chinese capital. Especially, the world's mines capable of extracting key minerals used as core materials are virtually dominated by Chinese companies.

According to the Korea Resource Information Service on the 24th, the price of lithium, which was traded at around 100 yuan per kilogram (about 19,556 KRW) last August, has soared to 469.5 yuan per kilogram (about 91,815 KRW), more than quadrupling and continuing its high-altitude march. Other key raw materials, cobalt and nickel, also reached peak prices after the outbreak of the war between Russia and Ukraine this year, then dropped by about 30-40%, but still maintain high prices. Cobalt, which was around $32,000 per ton (about 43.05 million KRW) in January 2020, is currently about $49,000 per ton (about 65.92 million KRW), and nickel rose from $13,000 per ton (about 17.48 million KRW) to about $21,800 per ton (about 29.32 million KRW) during the same period.

◆ Betting on South America, Africa, and Australia Mines: China = The sharp rise in battery raw material prices was triggered by complex and structural causes such as war risks, surging electric vehicle demand, and global supply chain restructuring. However, the Chinese battery industry was able to celebrate amid the volatile raw material prices. Chinese companies have been eyeing the potential of the electric vehicle market since the early 2010s and have been acquiring mines capable of extracting lithium, nickel, and cobalt.

China's dominance in the lithium market, which has seen the highest price increases and continues to soar, is overwhelming. Although 60% of the world's lithium reserves are concentrated in the 'Lithium Triangle' of South America?Bolivia, Chile, and Argentina salt lakes?the top producer of lithium compounds used in batteries, such as lithium hydroxide and lithium carbonate, is China. Moreover, China is acquiring mining rights for major mines.

Equipment vehicles moving at a lithium mine. Photo by SoHoo.com capture

Ganfeng Lithium, which accounts for about 24% of global lithium hydroxide production, acquired the Argentine mining company 'Lithea' last month for $962 million (about 1.2938 trillion KRW) through an M&A. Lithea owns two salt lakes in Salta, Argentina, which are rich in mineral resources, with estimated lithium carbonate reserves of about 11.06 million tons.

Also, China's largest cobalt producer, Zhejiang Huayou Cobalt, acquired Prospect Lithium Zimbabwe, a lithium mining company in Zimbabwe, Africa, last year for $422 million (about 567.5 billion KRW). This company owns the 'Arcadia' mine, which is known to have lithium reserves estimated between 1.24 million and 1.9 million tons. Additionally, Huayou Cobalt purchased Prospect Resources in Australia for $422.2 million (about 567.8 billion KRW). Following cobalt, a key raw material for battery cathodes, they are increasing investments in lithium, a raw material for electrolytes. CATL, the world's largest battery company, also invested $240 million (about 322.8 billion KRW) in a lithium development project in the Democratic Republic of Congo last September, securing a 24% stake.

The supply chain for cobalt, the most expensive among the ternary (nickel-cobalt-manganese) battery materials that are the mainstay of Korea's three major battery companies, is also controlled by China. About 60% of the world's cobalt reserves are buried in the Democratic Republic of Congo, where Chinese companies such as Luoyang Molybdenum and Huayou Cobalt have invested over $10 billion (about 12 trillion KRW) since 2012, sweeping up cobalt mines in Congo. Chinese companies have dominated the cobalt supply chain from minerals to raw materials (cobalt compounds). Raw material information provider S&P Global Platts analyzed, "As China focuses on carbon neutrality goals, the electric vehicle market is growing, and accordingly, prices of electric vehicle raw materials such as lithium have risen significantly."

◆ China's Supply Chain Independence, High Exchange Rates, High Raw Material Prices... Korea's Battery Industry Faces Another 'Triple Hardship' = Korean battery companies have built cooperative relationships with Chinese battery material and mineral companies. Thanks to this, they have succeeded in securing key battery materials stably. According to the Korea International Trade Association, among the $1.74829 billion (about 2.3357 trillion KRW) worth of imports of key secondary battery materials such as lithium hydroxide (lithium oxide and lithium hydroxide) from January to July this year, imports from China accounted for $1.47637 billion (about 1.9724 trillion KRW), or 84.4%. During the same period, cobalt imports from China accounted for $127.44 million (about 170.2 billion KRW), or 81.0%, out of a total import value of $157.4 million (about 210.2 billion KRW), and natural graphite imports from China accounted for $64.45 million (about 86.1 billion KRW), or 89.6%, out of a total import value of $71.95 million (about 96.1 billion KRW).

However, with the implementation of the U.S. Inflation Reduction Act (IRA) and the U.S.-led supply chain restructuring process, which has expressed a strong intention to thoroughly exclude Chinese supply chains, a certain level of course correction has become necessary.

View of Pilbara Minerals lithium mine in Australia. The photo is not directly related to the article. Photo by POSCO

In particular, recently, with the sharp rise in exchange rates, there is a growing possibility of additional costs for securing raw materials. Looking at LG Energy Solution, a global leader in finished battery cells, its debt stood at about 4.2494 trillion KRW at the end of Q2 this year due to overseas joint ventures and successive investments, and if the KRW/USD exchange rate rises by 10%, it is estimated to incur a loss of about 160 billion KRW.

In addition, due to the IRA implementation, additional costs are expected to be borne to establish a third supply chain to replace Chinese raw materials secured through long-term supply contracts. An industry insider said, "Additional costs to find alternative mineral and material suppliers to China and to sign new contracts seem inevitable," but added, "The supply contracts with Chinese companies are not sunk costs, and with the explosive demand for batteries, the European and Asian markets can sufficiently absorb them."

Professor Kim Pil-su of Daelim University's Department of Automotive Engineering advised, "It is not necessary to change strictly according to the IRA implementation, but the fact that Korean companies depend on a single country for about 90% of their supply chain is itself a risk," and emphasized, "It is time to make efforts to diversify the supply chain."