[Battery, Questioning the Crisis] Zero Chinese Share in New Lithium and Nickel Supply Chains... IRA Transforms Korean Battery Industry

①Reviewing 21 Major Supply Chain Changes
By Country: Korea 7, Australia 6, China 5
76% of New Supply Chains Unrelated to China
China-Related Cases Limited to Precursor Business Joint Ventures

Over 80% Dependence on Chinese Raw Materials in Korean Battery Supply Chain
Breaking Free from Supply Chain Constraints with Overseas Resource-Rich Countries
However, Precursors Remain a 'Weak Link'

Editor's NoteCan Korea's battery industry truly become the next advanced industry growth engine? Looking at the stock market, which thrives on future value, the recent atmosphere around the battery industry has changed. Ecopro, which rose to become a 'king stock,' is now threatened to fall below the 1 million KRW mark. As the stock prices of major battery companies have weakened, a 'crisis theory' has emerged. The global recession and weaker electric vehicle sales have had a significant impact. We revisited the crisis facing Korea's battery industry, standing at the crossroads of growth and stagnation, from three perspectives: supply chain, price competition, and labor shortage.

Since the enactment of the U.S. Inflation Reduction Act (IRA) one year ago, Korean battery companies have been working to break free from China's supply chain and stand independently. Of the newly secured supply chains over the past year, 76% are unrelated to China.

On the 6th, Asia Economy examined 21 major supply chain changes since the second half of last year among key battery companies such as LG Energy Solution, SK On, and Samsung SDI. When classifying countries involved in the production and supply of key raw materials such as lithium, nickel, and precursors (intermediate raw materials for cathode active materials), including overlaps, the results were: Korea 7 cases, Australia 6, China 5, Canada 3, USA 2, Chile 1, Germany 1, and the Philippines 1. Although China accounted for 5 cases (about 23%), 4 of these were domestic joint ventures for precursor production, and 1 was an overseas joint venture. There were no cases of newly sourcing key minerals such as lithium and nickel from Chinese companies.

By raw material, there were 10 cases for lithium, 6 for precursors, 4 for nickel, 2 for graphite, and 1 for cobalt. The supply of minerals like lithium and nickel, which had high dependence on China, increased from countries such as Australia (3 cases), Canada (2), and Chile (2). The newly added raw material supply chains are expected to be utilized starting from 2024-2025, coinciding with the operation of large-scale battery factories in the U.S.

Supply Chain of Korean Battery Raw Materials Previously Highly Dependent on China

Chinese companies have dominated the battery raw material market by leveraging low labor costs, electricity fees, and overseas mining rights. Korean battery companies were major customers. The influence of Chinese companies capable of supplying cheap minerals and materials grew steadily. In the first half of this year, Korea's import dependence on China for battery raw materials reached 82% for lithium hydroxide, 100% for cobalt sulfate, 75% for manganese sulfate, and 97% for precursors (Korea International Trade Association). The government even set a goal to reduce dependence on the Chinese battery supply chain from the current 80% level to less than half by 2030, seven years from now.

According to the global battery supply chain ranking released by energy market research firm BloombergNEF (BNEF) in November last year, Korea ranked 6th overall. Korea ranked 2nd in battery manufacturing after China but was 17th in raw materials, tying for 6th with Germany. Countries such as Canada, the USA, Finland, and Norway ranked higher than Korea.

'Excluding Chinese Supply Chains' Has Begun, but Precursors Remain a 'Weak Link'

The U.S. is attracting battery factories by providing substantial subsidies directly to companies. However, to receive subsidies, key minerals such as lithium and nickel must be mined and processed in the U.S. or countries with which the U.S. has Free Trade Agreements (FTA). The required ratio of mining and processing of minerals in the U.S. or FTA countries is currently about 40% and will increase to 50% in 2024, 60% in 2025, 70% in 2026, and over 80% in 2027. Accordingly, domestic companies are distancing themselves from Chinese supply chains that do not have FTAs with the U.S. Companies like POSCO Group are purchasing and developing overseas mining and salt lake rights in Argentina, Australia, and other countries to directly produce lithium and nickel.

The 'supply chain challenge' that remains unresolved is the precursor. Precursors are intermediate raw materials for cathode active materials made by mixing nickel, cobalt, manganese, aluminum, and others. They account for about 70% of the cost of cathode active materials. China has a manufacturing environment that can improve precursor production efficiency. It holds numerous mining rights and has low labor costs. It also does not strictly regulate the large amounts of pollutants generated during processing and refining. In the first half of this year, Korea's trade deficit with China for precursors reached $2.11 billion (about 2.8147 trillion KRW). A battery industry insider said, "Although precursor manufacturing is not highly difficult, since batteries have been produced based on precursors made in China, there is a tendency to use Chinese precursors for supply stability."

Korean battery companies are promoting domestic precursor production through joint ventures with Chinese precursor companies. POSCO Group is establishing precursor joint venture factories in Gwangyang and Pohang with companies such as Huayou Cobalt and CNGR. LG Chem is also building a precursor joint venture factory with Huayou Cobalt in Saemangeum, Jeonbuk, with an annual capacity of 50,000 tons. SK On and Ecopro plan to build a precursor production plant with an annual capacity of 50,000 tons in Saemangeum through a joint venture with China's GEM. POSCO Future M and Kemco (a subsidiary of Korea Zinc) have started precursor production using domestic technology or are constructing production plants.

The problem lies in the scope of the Foreign Entity of Concern (FEOC) under the U.S. IRA (Inflation Reduction Act). The IRA prohibits sourcing key battery minerals from FEOCs designated by the U.S. government. Battery components sourced from FEOCs will be excluded from subsidy eligibility starting in 2024, and key minerals from 2025. However, even after one year of IRA enforcement, the U.S. government has not issued detailed FEOC guidelines. The Korean government requested the U.S. in June to clarify the definition of FEOC. If Sino-Korean joint ventures are included in FEOC, battery companies using precursors from these joint ventures will not be eligible for subsidies in the U.S.

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