[Bojo, Battery] Korean Battery "Lithium and Nickel Supply Chains Present Bargain Buying Opportunities"

Lithium Supply Contracts and Development Projects Proceeding Consecutively

Editor's Note'Bojo, Battery' is a series that takes a closer look at the battery industry, which has emerged as the center of next-generation advanced industries. It examines the agile movements, strategies, and conflicts among governments and companies worldwide vying to dominate the battery manufacturing ecosystem. We will also cover the technological competition to create safer and longer-lasting batteries. We aim to serve as an 'assistant' to readers and investors by enhancing and supporting their understanding of the battery industry. We will share battery stories that are easy to approach.

Despite nearly a year of downturn in the electric vehicle and battery sectors, supply chain investments in the industry continue. Even during periods of declining mineral prices, aggressive supply chain acquisition strategies based on 'low-price buying' are being employed.

According to the battery industry on the 19th, this year, battery cell companies such as LG Energy Solution, SK On, and Samsung SDI, as well as material suppliers and automakers, have been actively securing raw materials. They have been sourcing key raw materials for lithium-ion batteries such as lithium, nickel, and graphite from overseas mining and refining companies or directly participating in management through equity acquisitions in local mines.

POSCO aiming to mine lithium in Chile... Samsung SDI and Hyundai Motor sign direct lithium purchase contracts

The leading figure in securing battery raw material supply chains is the POSCO Group. POSCO Group is the only domestic company that mines and produces battery raw materials overseas using its own technology. It secured brine and ore lithium supply chains through the acquisition of the Hombre Muerto lithium salt lake in Argentina and equity investment in Pilbara Minerals in Australia. Notably, a lithium production plant with an annual capacity of 25,000 tons is scheduled to be completed this year at the Hombre Muerto salt lake in Argentina. Recently, POSCO Group has also planned to secure additional lithium salt lakes in Chile, the country with the world's largest lithium reserves, through cooperation with the Chilean government. POSCO Group stated, "We will leverage the current electric vehicle market chasm (temporary stagnation in a growth industry) and the period of declining mineral prices as an opportunity to acquire high-quality assets such as lithium salt lakes and mines at low prices, thereby completing a full value chain in the competitive secondary battery materials business." In addition to brine and ore lithium, POSCO Group plans to secure non-traditional lithium sources such as geothermal brine lithium from Salton Sea, California, USA, and lithium from Canadian oilfield waste.

Samsung SDI has also recently strengthened its supply chain by directly purchasing lithium. Samsung SDI signed a long-term supply contract with EcoPro Innovation to receive approximately 154,000 tons of lithium over about 10 years until 2033. Samsung SDI plans to enhance cost competitiveness by directly purchasing lithium, which accounts for a high proportion of battery costs, and to strengthen material internalization by supplying the purchased raw materials to its subsidiary STM for cathode material production. Until now, Samsung SDI had not publicly disclosed direct purchase contracts for raw materials such as lithium and nickel, but this contract was made public.

Samsung SDI has mainly sourced cathode materials externally from EcoPro BM and joint venture EcoPro EM, but its cathode material purchase price is higher compared to other companies. In the first quarter of this year, LG Energy Solution purchased cathode materials at $19.9 per kg, while Samsung SDI's purchase price was about $36 per kg during the same period. Samsung SDI invested 412.5 billion KRW in STM last year to increase production capacity. Additionally, Hyundai Motor and LX International are also securing supply chains through long-term lithium supply contracts and investments in overseas nickel mines.

"The chasm is the right time to invest in batteries"

The optimal time to invest in the energy sector is when demand slows and prices fall. Just as in the refining and petrochemical sectors dealing with crude oil and natural gas, the battery industry is also considered to have the best investment timing when raw material prices decline. Currently, the industry is experiencing growth stagnation due to high interest rates and the chasm. Accordingly, battery cell and material companies are rolling up their sleeves to invest again in raw material supply chains.

Recently, mineral prices have shown a trend of sharp decline followed by stabilization at a lower level. Lithium prices, which rose to 580,000 yuan per ton (about 110.24 million KRW) in November 2022, fell to around 89,000 yuan per ton (about 16.91 million KRW) in February this year and currently stand at about 93,500 yuan per ton (about 17.77 million KRW). Nickel prices, which reached $31,000 per ton (about 42.87 million KRW) in January last year, are currently around $17,000 per ton (about 23.5 million KRW). The decline in raw material prices is expected to make supply chain acquisition easier.

Battery companies are rushing to invest during this downturn because they can secure greater price competitiveness when the market turns around. Moreover, securing independent supply chains remains an important task for domestic battery companies to counter China's dominance of the global battery raw material supply chain. Just a year ago, when the market was strong, securing raw material supply chains was the top priority for companies. On the 18th (local time), POSCO Group Chairman Jang In-hwa stated at the 'Global Steel Dynamics Forum' held in New York, USA, "The automotive market will ultimately transition to electric vehicles," adding, "We will take the chasm period as an opportunity to strengthen our foundation and continue to explore new investment opportunities."