With US IRA Implementation Approaching... Increasing Chinese Dependence on Battery Materials Lithium and Cobalt

[Asia Economy Reporter Jang Hyowon] Last year, the dependence on Chinese imports of key electric vehicle battery materials such as lithium hydroxide and cobalt increased, according to a recent investigation.

According to the Korea International Trade Association on the 24th, out of the total import value of $3.68 billion for lithium hydroxide (including lithium oxide), a core material for secondary batteries, imports from China amounted to $3.23 billion, accounting for 87.9%. This is 4.1 percentage points higher than the year before last.

Last year, due to strong sales of eco-friendly vehicles such as electric cars, demand for lithium hydroxide surged, causing prices to skyrocket, and imports from China increased by 5.8 times compared to the previous year.

The dependence on Chinese imports of lithium hydroxide, mainly used in NCM (Nickel-Cobalt-Manganese) batteries, the main product of the domestic battery industry, has been increasing every year.

Five years ago in 2018, it was only 64.9%, but it rose to 74.4% in 2019, 81.2% in 2020, 83.8% in 2021, and nearly 90% last year.

For cobalt (cobalt oxide and cobalt hydroxide), out of the total import value of $250 million last year, imports from China accounted for 72.8% ($180 million), an increase of 8.8 percentage points compared to the previous year.

The share of cobalt imports from China increased from 53.1% in 2018 to 56.3% in 2019, and 83.3% in 2020, then decreased to 64.0% the year before last, but dependence deepened again last year.

Natural graphite accounted for 94% of imports from China ($120 million out of a total $130 million). This is a 6.5 percentage point increase from 87.5% the year before last, indicating growing dependence on China as well.

Meanwhile, the implementation date for the key mineral requirements of the U.S. Inflation Reduction Act (IRA) is approaching in two months. The IRA provides a tax credit of $7,500 only for electric vehicles that meet the mineral and component requirements of the battery, of which $3,750 applies only to batteries using at least 40% (over 80% by 2027) of critical minerals mined or processed in North America or countries with which the U.S. has a Free Trade Agreement (FTA).

The government is persuading the U.S. Treasury Department, ahead of the March announcement of the IRA tax credit guidance (sub-regulations), to include countries such as Indonesia and Argentina, from which Korean companies mainly procure minerals, as recognized origins for the critical mineral ratio.

The domestic battery industry is making every effort to diversify the supply chain of critical minerals.

LG Energy Solution signed a lithium carbonate supply contract with a U.S. company and a natural graphite supply contract with an Australian company last year, while SK On consecutively signed long-term mineral supply contracts with lithium producers in Australia and Chile.

Samsung SDI jointly invested with EcoPro BM to establish the cathode material manufacturer EcoPro EM and completed the world's largest cathode material plant in Pohang, Gyeongbuk.

Competition among material companies to secure lithium is also heating up. Posco, which produces lithium mainly from Australian mines and Argentine salt lakes, plans to start producing 20,000 tons of lithium annually in North America from 2025.

In a report published last month, the Trade Association argued, "We need to restore overseas resource development support projects and promote multilateral agreements to prepare for the nationalization movements of critical minerals by resource-holding countries."