Electric Vehicle Core Material 'Dongbak'... Korean Manufacturers Leaving Korea for Malaysia

Korea's Top 2 Copper Foil Manufacturers Iljin and SK Both Use Malaysia as Production Base
Electricity and Labor Costs Account for 26% of Production Cost... Malaysia Over 50% Cheaper
Hydropower as Main Energy Source Advantageous for RE100 Achievement
Copper Foil Market to Grow Eightfold to 1.62 Million Tons by 2030

Copper foil produced by Iljin Materials.
Photo by Iljin Materials

[Asia Economy Reporter Lee Junhyung] The 'de-Korea-ization' of manufacturing is intensifying, as domestic manufacturers competing for the 2nd and 3rd largest shares in the global copper foil market are all choosing to move to Malaysia. This is due to rising production costs such as electricity bills and labor costs, as well as strengthened environmental regulations in developed countries.

Following Iljin Materials' completion of a copper foil factory in Kuching, Malaysia at the end of 2019, SK Nexilis, a subsidiary of SK Group, also decided to enter Malaysia last month. The main reason both companies headed to Malaysia is the increasing burden of production costs. Electricity and labor costs account for about one-quarter of the copper foil production cost.

Malaysia's Low Electricity Rates...Labor Costs at One-Fifth Level

Copper foil is a key material for lithium-ion battery anodes, with 40kg used per electric vehicle. According to the securities industry, raw materials account for half of the copper foil production cost, followed by electricity (15%) and labor costs (11%) as significant production cost components.

Cheap electricity rates and stable power supply are essential. Copper foil is produced by electroplating copper onto a titanium drum, a process that requires large-scale electricity. Malaysia's electricity rates are less than half of Korea's. According to the Malaysian Investment Development Authority (MIDA) and others, the industrial electricity rate in Sarawak, where Iljin Materials' local factory is located, averages 66 KRW per kWh, about 40% cheaper than Korea's 107 KRW.

Domestic industrial electricity rates have sharply increased since 2000. This was due to the rationalization of industrial electricity rates, which were lower than residential rates. However, the rapid price increase has become a factor weakening manufacturing competitiveness.

The labor cost gap is also significant. According to Statistics Korea, the average monthly wage in Malaysian manufacturing was 710,000 KRW (as of 2018), less than one-fifth of the domestic average wage of 3.93 million KRW at that time.

Strength in Hydropower...Advantageous for ESG Strategies

Environmental regulations such as RE100 (Renewable Energy 100), which are being strengthened in Europe, the largest demand market for electric vehicles, have also contributed to domestic manufacturers moving to Malaysia. RE100 aims to supply 100% of required electricity from renewable energy. Malaysia's main power source is hydropower, making it advantageous for the RE100 strategy. Iljin Materials considered this aspect in its investment in Malaysia, and SK Nexilis has set a goal to achieve RE100 at its Malaysian factory.

Professor Lee Hogun of Daeduk University's Department of Automotive Engineering said, "In Europe, they check how environmentally friendly electric vehicle parts are made, and this trend is strengthening. Malaysia, with a well-established hydropower system, is advantageous in responding to such regulations." He also predicted that for these reasons, the 'de-Korea-ization' of domestic manufacturers will intensify.

The industry states that while cost burdens are reasons for relocating or expanding overseas factories, it is difficult to disclose specific backgrounds. An industry official said, "If production cost competitiveness is revealed, it is highly likely to lead to pressure on suppliers to lower delivery prices to material and component companies."

Meanwhile, the copper foil market is expected to grow rapidly, driven by steadily increasing demand for electric vehicles. The global copper foil market size is projected to expand sharply from 190,000 tons in 2019 to 1.62 million tons by 2030. In the fourth quarter of last year, domestic copper foil exports increased by 81.8% compared to the same period the previous year. Iljin Materials and SK Nexilis recorded cumulative sales of 404.3 billion KRW and 250.7 billion KRW respectively in the third quarter of last year.

This content was produced with the assistance of AI translation services.