China Engages in Resource War...Industry Struggles to Enter Local Market and Secure Import Sources (Comprehensive)

China Resource War Pressures Industry
Korea Core Raw Material Prices Rise
"Urgent Need to Secure New Import Sources"

Electric vehicle battery production line. (Photo by Asia Economy DB)

[Asia Economy Reporters Oh Hyung-gil and Moon Chae-seok] As the Ukraine unrest highlights the risks to global raw material markets once again, the real concern emerging from the industry is China's weaponization of resources. Since the US-China trade dispute intensified in 2018, the idea of 'de-China-ization'?diversifying supply chains across countries?has been spreading. However, international raw material prices are increasingly moving in line with China's influence. The prolonged COVID-19 pandemic and rising oil and raw material prices have also raised concerns about China-driven inflation, putting pressure on domestic industries. The market consensus is that urgent alternatives to reduce dependence on China, such as sourcing from Australia and Indonesia, are needed.

China Controls Prices of Korea's Key Raw Materials

Chinese iron ore factory. (Photo by Asia Economy DB)

According to the Korea Resource Information Service on the 18th, China's market share in the global market has caused lithium prices to surge 483.6% year-on-year to 408.5 yuan per kilogram as of the second week of February. Rare earth elements (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 overwhelmingly dominates global processing of key minerals. Rare earth elements account for 87%, cobalt and lithium 65% and 58% respectively, copper 40%, and nickel 35%. Most of these are essential raw materials for core components in our manufacturing industry. Ultimately, rising prices are increasing cost burdens for Korean companies.

China's influence in the raw material market is intensifying. Iron ore is a prime 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 raw material markets causes another problem. As China emerges as a competitor through manufacturing development, it gains a price competitiveness advantage. China's strategy is to attract global factories with cheap labor costs, securing overwhelming cost competitiveness. Korea faces difficulties securing cost competitiveness as 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 success prospects 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

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 earth elements. 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 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.

As China strengthens its control, Korea's import dependence on China is increasing. 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, investment costs and time 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, 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 such as 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 worldwide is limited, immediate diversification of import sources is not easy. Recently, companies have been showing interest in and entering Indonesia, a resource-rich country in ASEAN, as a response to secure second and third alternative import sources."

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