If China Blocks Key Raw Materials, Domestic Industry Left Helpless

High Dependence on China 'Boomerang'
Magnesium 99.9% Imported in Q1
Deterioration of Export Profitability for Domestic Companies

The sharp increase in imports of key raw materials from China for our core industries inevitably leads to vulnerability to China-related risks. Our resource-scarce industries have so far led future industries with an industrial structure centered on intermediate goods, importing cheap raw materials and consumer goods from China, processing them, and then re-exporting. However, if China uses key raw materials as a security issue, even core industries will inevitably be shaken. Experts advise that to reduce dependence on Chinese imports, the public and private sectors should actively diversify import sources by utilizing nearby resource-rich countries such as Vietnam and Indonesia, which account for 30-40% of import shares.

According to the Korea Mining Industry Promotion Agency's Korea Resource Information Service on the 2nd, the price of 1 ton of magnesium was $5,572.5 as of the 29th of last month, down from this year's peak of $8,127.5 but up 99.3% compared to a year ago ($2,795). Magnesium, known as the salt of manufacturing for its excellent strength and weight reduction properties, is 99.9% imported from China as of the first quarter of this year. Fortunately, most models sold by domestic automakers currently use ultra-light steel sheets more than magnesium, so the short-term impact of raw material price increases is relatively small. However, the use of materials such as magnesium and aluminum is increasing mainly in domestic luxury and electric vehicles, so the rapidly changing import prices are being closely monitored.

Lithium hydroxide, used as a material for secondary batteries, a core industry for our future food sources, also has a high dependence on China. Although lithium reserves in China account for only about 10% of the world's total, China produces the most lithium compounds needed for the industry. In other words, if Chinese producers raise lithium production costs, it inevitably leads to increased costs. According to the Korea Resource Information Service, as of the end of last month, the price of lithium carbonate was 432.5 RMB (Chinese currency unit) per ton, a staggering 427.4% increase compared to 82.0 RMB in the same period last year.

Professor Kang Cheon-gu, an invited professor of Energy and Resources Engineering at Inha University, warned, "China has already weaponized rare minerals and is expanding this range to various raw materials such as urea export controls," adding, "These measures by China aim to accelerate weaponization by creating unified government-level guidelines."

The industry warned that the sharp rise in raw material prices in China is rapidly deteriorating the export profitability of our companies. Last month, representatives from 16 domestic industry associations, including semiconductors, petrochemicals, automobiles, and shipbuilding, appealed at the 'Meeting to Check the Impact of Raw Material Price Surges on the Trade Industry' that urgent government-wide measures are needed to manage raw material supply chains.

The deterioration in export profitability is reflected in the trade deficit. In fact, last month, the trade balance recorded a deficit of $2.66 billion. This occurred despite achieving the highest export performance for April on record at $57.7 billion, as imports increased by 18.6% during the same period to $60.35 billion. In particular, energy imports led the increase, rising to $14.81 billion, up $7.09 billion from $7.72 billion in the same month last year.

Concerns are also growing due to raw material import restrictions caused by diplomatic discord with China, such as the new government's plan to strengthen the deployment of THAAD (Terminal High Altitude Area Defense). This is because, as promised by President-elect Yoon Suk-yeol, additional THAAD deployments are being considered to strengthen Seoul's defense system. Experts emphasize that to reduce dependence on Chinese raw material imports, supply sources should be diversified step-by-step, focusing on nearby major resource-rich countries.

Professor Kang advised, "Although the dependence on raw material imports from countries like Vietnam, Malaysia, and Indonesia is relatively small at about 30-40%, to reduce dependence on China, the public and private sectors should work together to start diversifying supply sources centered on these regions, especially for nickel and magnesium."

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