Why China Smiles Despite Supply Chain Reshuffle After Dual Buying of 'Battery Mines'

Lithium Prices Quadruple... Nickel and Cobalt Also Soar
China Celebrates Amid Raw Material Price Surge with Mines
Experts Call for Diversification of Battery Supply Chain Centered on China

[Asia Economy Reporter Jeong Dong-hoon] China's dominance over the battery supply chain is once again under the spotlight. It is difficult to find any area in the entire battery manufacturing process that is not influenced by Chinese capital. The Inflation Reduction Act (IRA) promoted by the United States and the restructuring of supply chains reflect concerns about China's control over the supply chain. In particular, global mines capable of extracting key minerals used as core materials are almost exclusively controlled by Chinese companies.

China Bets on South American, African, and Australian Mines as Soon as They Hit the Market

According to industry sources on the 27th, the sharp rise in battery raw material prices can be attributed to complex and structural causes such as war risks, surging demand for electric vehicles, and global supply chain restructuring. However, the Chinese battery industry was able to celebrate amid the volatile raw material prices. Since the early 2010s, Chinese companies have been eyeing the potential of the electric vehicle market and acquiring mines capable of extracting lithium, nickel, and cobalt.

China's dominance in the lithium market is particularly overwhelming. Although 60% of the world's lithium reserves are concentrated in the 'Lithium Triangle' of South America?Bolivia, Chile, and Argentina's salt lakes?the leading producer of lithium compounds used in batteries, such as lithium hydroxide and lithium carbonate, is China. Moreover, Chinese companies are acquiring mining rights to major mines as well.

Ganfeng Lithium, which accounts for about 24% of global lithium hydroxide production, acquired Argentine mining company 'Lithea' last month for $962 million (approximately 1.2938 trillion KRW) through an M&A. Lithea owns two salt lakes in Salta, Argentina, a region rich in mining resources, with estimated lithium carbonate reserves of about 11.06 million tons.

Additionally, China's largest cobalt producer, Zhejiang Huayou Cobalt, acquired Prospect Lithium Zimbabwe, a lithium mining company in Zimbabwe, Africa, last year for $422 million (approximately 567.5 billion KRW). The company owns the 'Arcadia' mine, which is known to contain between 1.24 million and 1.9 million tons of lithium. Huayou Cobalt also purchased Prospect Resources in Australia for $422.2 million (approximately 567.8 billion KRW). Following investments in cobalt, a key raw material for battery cathodes, the company is increasing investments in lithium, a raw material for electrolytes. CATL, the world's leading battery company, also invested $240 million (approximately 322.8 billion KRW) in a lithium development project in the Democratic Republic of Congo last September, securing a 24% stake.

The supply chain for cobalt, the most expensive material among the ternary (nickel-cobalt-manganese) battery materials that are the mainstay of Korea's three major battery companies, is also controlled by China. About 60% of the world's cobalt reserves are buried in the Congo, Africa, where Chinese companies such as Luoyang Molybdenum and Huayou Cobalt have invested over $10 billion (approximately 12 trillion KRW) since 2012 to sweep up cobalt mines. Chinese companies have dominated the cobalt supply chain from minerals to raw materials (cobalt compounds). S&P Global Platts, a raw material information provider, analyzed that "as China focuses on carbon neutrality goals, the electric vehicle market is growing, leading to a significant rise in prices of electric vehicle raw materials such as lithium."

Aerial view of POSCO's lithium plant in Argentina. Photo by POSCO Holdings

Korean Battery Companies Collaborating with China Face Inevitable Course Correction... "Supply Chain Diversification Needed"

Korean battery companies have established cooperative relationships with Chinese battery material and mineral companies. Thanks to this, they have succeeded in securing key battery materials stably. According to the Korea International Trade Association, among the $1.74829 billion (approximately 2.3357 trillion KRW) worth of imports of key secondary battery materials such as lithium hydroxide (lithium oxide and lithium hydroxide) from January to July this year, imports from China accounted for $1.47637 billion (approximately 1.9724 trillion KRW), or 84.4%. During the same period, cobalt imports totaled $157.4 million (approximately 210.2 billion KRW), with $127.44 million (approximately 170.2 billion KRW, 81.0%) coming from China. For natural graphite, out of total imports worth $71.95 million (approximately 9.61 billion KRW), $64.45 million (approximately 8.61 billion KRW, 89.6%) were from China.

However, with the implementation of the U.S. Inflation Reduction Act (IRA) and the U.S.-led supply chain restructuring process, which expresses a firm intention to thoroughly exclude Chinese supply chains, a certain level of course correction has become necessary.

Professor Kim Pil-soo of the Department of Automotive Engineering at Daelim University advised, "It is not necessary to change strictly in line with the implementation of the IRA, but the fact that Korean companies show about 90% dependence on supply chains from a specific country is itself a risk. It is time to make efforts to diversify the supply chain."

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