"50% Lithium Localization in 5 Years"… LG Chem Battery Mineral Expansion

"By 2028, five years from now, we will internalize 50% of lithium usage."

LG Chem, expanding its battery materials business, has set a concrete goal to secure the supply chain of key mineral materials such as nickel and internalize them.

As demand for electric vehicle batteries explodes, securing minerals independently to ensure stable supply has emerged as an important issue. With mineral prices soaring, having an independent supply chain is directly linked to price competitiveness. If LG Chem increases its mineral internalization rate, the battery value chain of LG Group, including LG Energy Solution which receives battery materials from LG Chem, is expected to be further strengthened.

LG Chem revealed this information last month on the 25th during a visit by Lee Chang-yang, Minister of Trade, Industry and Energy, to LG Energy Solution's Ochang Energy Plant. Specifically, the internalization rate of lithium, known as "white petroleum," is planned to increase to 50% by 2028, and nickel is targeted to reach an internalization rate of 65%.

Internalization is a strategy to secure a certain amount of produced minerals by partnering with companies that develop and secure minerals, or through equity investments or share exchanges. This concept is distinct from long- and short-term supply contracts where required quantities are procured from the market or suppliers; it is an approach to build an independent supply chain.

Until now, LG Chem has never officially disclosed its internalization rate externally. Because of this, even LG Chem employees outside the relevant departments were not well aware of the mineral internalization rate targets. Within the industry, LG Chem's internalization rate for cathode materials and precursors is estimated to be 20-30%, but the mineral internalization rate was presumed to be extremely low.

Hana Securities analyzed in a report last March that LG Chem's long-term supply contract ratio for lithium carbonate and lithium hydroxide was 67% in 2021 and 58% last year. However, they presented the internalization rate as 0%. Researcher Yoon Jae-sung of Hana Securities evaluated, "LG Chem is focusing on qualitative growth such as upstream (back-end industry) expansion rather than quantitative growth like investing in U.S. lithium companies and joint ventures with Korea Zinc for precursors."

LG Chem is expected to secure raw materials through recent mineral internalization and complete a production system that leads from mineral-mixed compound precursors to cathode materials.

In February, LG Chem secured a 5.7% stake in U.S. mining company Piedmont Lithium and signed a lithium concentrate purchase contract. Starting from the third quarter, it will receive 200,000 tons over four years.

Additionally, in November last year, LG Chem exchanged 260 billion KRW worth of treasury shares with Korea Zinc and agreed to expand cooperation on raw materials and precursors. In June last year, it secured an 8.75% stake in China's Tianqi Lithium, establishing a long-term supply chain for lithium hydroxide.

Precursor plants are also under construction at the Ulsan Onsan Industrial Complex and Saemangeum National Industrial Complex. In Onsan, LG Chem jointly established "Korea Precursor Company" with Kemco, a Korea Zinc affiliate, aiming for mass production in the second quarter of next year. In Saemangeum, it is investing 1.2 trillion KRW with China's Huayou Cobalt to build a precursor plant with an annual capacity of 100,000 tons. Other battery material businesses such as anode materials, separators, and copper foil are also being strengthened.

The battery industry expects rapid internalization of raw materials highly dependent on Chinese imports due to the implementation of the U.S. Inflation Reduction Act (IRA). Not only the U.S. but also Europe is likely to exclude China from the battery supply chain in the future, making "de-China" inevitable for material suppliers. LG Chem has also stated that it can acquire all shares of its precursor joint venture, China's Huayou Cobalt, if necessary.