China's Resource Weaponization... South Korea Navigates 'Battlefield' for Local Expansion and Securing Import Sources

China's Resource War Pressures Industry
Korea's Key Raw Material Prices Rise
China's Influence Grows, Competitive Edge
High Import Dependence on Rare Earths
Urgent Need to Secure New Import Sources

[Asia Economy Reporters Oh Hyung-gil and Moon Chae-seok] Amid the renewed spotlight on raw material risks in the global market due to the unrest in Ukraine, the real concern raised by the industry is China's weaponization of resources. Since the full-scale escalation of the US-China trade dispute in 2018, the idea of 'de-Chinaization'?diversifying supply chains across countries?has been spreading. However, international raw material prices are moving in line with China's influence. The prolonged COVID-19 pandemic and the resulting rise in oil and raw material prices have also heightened concerns about China-driven inflation, putting pressure on domestic industries. The market consensus is that urgent alternatives, such as Australia and Indonesia, are needed to realize de-Chinaization.

China Controls Prices of Korea's Key Raw Materials

According to the Korea Resource Information Service on the 18th, China's market share in the global market has surged dramatically. For lithium, the price reached 408.5 yuan per kilogram in the second week of February, marking a 483.6% increase compared to the same period last year. Rare earth oxide (dysprosium oxide) rose 33.1% to $495.

Cobalt hydroxide, a raw material for electric vehicle batteries, jumped 50.5% to $70,725 per ton, while nickel and manganese also increased to $24,150 (29.1%) and $1,685 (20.8%) respectively. According to the International Energy Agency (IEA), China holds an overwhelming share of global mineral processing. Rare earths account for 87%, cobalt and lithium for 65% and 58% respectively, copper 40%, and nickel 35%. Most of these are essential raw materials for key components in our manufacturing industry. Ultimately, the price increases are raising cost burdens for Korean companies.

China's influence in the raw material market is intensifying. Iron ore is a representative example. After prices surged last year, iron ore recently dropped 9.3% year-on-year to $149.32 per ton. This is widely believed to be due to pressure from China's National Development and Reform Commission on iron ore traders to control price increases.

The growing influence of China in the raw material market causes another problem. As China emerges as a competitor through manufacturing development, it gains a price competitiveness advantage. China's strategy is to attract the world's factories with cheap labor costs, securing overwhelming cost competitiveness. Korea faces difficulties securing cost competitiveness because it must compete directly with China in major manufactured goods.

In a situation where successful overseas resource development cases are rare over several years, there are limits to individual companies' bargaining power, according to industry insiders. For example, electric vehicle battery companies must link prices with automakers, but the chances of success are uncertain. Meanwhile, China has been negotiating with automakers through battery cell companies like CATL, and major automakers such as Tesla are accelerating investments in China.

Urgent Need to Secure Alternative Import Sources to China

2mm work-in-progress product made during the rare earth processing stage (Image source=AP)

Korea, which depends heavily on imports for resources and most intermediate goods, finds it difficult to be free from China due to its industrial structure. A representative example is rare earths. In December last year, China merged five institutions?including three large state-owned rare earth producers, China Aluminum Group, China Wugang Group, and Ganzhou Rare Earth Group, along with two state-owned research institutes?into China Rare Earth Group. This is interpreted as an effort to strengthen control and leadership over the global rare earth supply chain.

The more China strengthens its control, the higher Korea's import dependence on China becomes. According to the Federation of Korean Industries, Korea's import dependence on China for key metal materials (rare earths) is 52.4%, which is 1.2 to 1.3 times higher than that of Japan and the United States.

While it is necessary to secure new import sources to replace China, the investment costs and time required make this difficult. Experts point out that Korea should maintain a stable supply chain through active joint ventures with China while also seeking new import sources.

The government has also taken steps to support this, such as discussing cooperation on critical mineral supply chains at the Korea-Australia summit in December last year. Australia is a resource-rich country abundant in minerals like rare earths, lithium, and nickel, which are essential for semiconductor and electric vehicle battery production.

Jung Bong-ho, Senior Deputy Director of the Asia-Pacific Cooperation Team at the Federation of Korean Industries, said, "Since the number of resource-rich countries in the world is limited, immediate diversification of import sources is not easy. Recently, companies have been showing interest and entering Indonesia, a resource-rich country in ASEAN, as a response to secure second and third import sources."

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