South Korean battery makers struggling to reduce reliance on China for key materials

By Park Yoon-bae Posted : January 25, 2023, 14:52 Updated : January 25, 2023, 17:59

[Courtesy of LG Energy Solution]

SEOUL -- Domestic manufacturers of electric vehicle batteries have made little progress in reducing their reliance on China for core materials, casting a dark cloud over exports of their products to the United States which discriminates against batteries made of Chinese materials under the Inflation Reduction Act (IRA).
According to the Korea International Trade Association (KITA), South Korea imported $3.23 billion worth of lithium hydroxide, a core material for secondary batteries, from China last year. The sum accounted for 87.9 percent of the total lithium hydroxide imports, up from 83.8 percent in 2021. The proportion has continued to grow from 64.9 percent in 2018 to 74.4 percent in 2019 and 81.2 percent in 2020.
Lithium hydroxide is required to produce Korea’s mainstream batteries using nickel, cobalt and manganese. China supplies 80 percent of global demand for lithium hydroxide, making it difficult for Korean firms to diversify their source of imports.
Local companies imported $180 million worth of cobalt, another key material for battery production, from China in 2022, representing 72.8 percent of the total cobalt imports. The percentage was up from 53.1 percent in 2018 and 56.3 percent in 2019. The figure surged to 83.3 percent in 2020, and then plunged to 64 percent in 2021. However, it rebounded to the 70 percent level last year.
The country’s imports of natural graphite, also one of major materials needed to make EV batteries, was estimated at $130 million in 2022. About 93.3 percent of the graphite imports came from China, up from 84 percent in 2018, 88 percent in 2019, 87.3 percent in 2020 and 87.4 percent in 2021.
The problem is that the U.S. is expected to implement the IRA in full swing in March. The IRA, which was signed into law by President Joe Biden last August, offers up to $7,500 in tax credits to electric vehicles assembled only in North America.
And half of the tax incentives will be given to vehicles meeting a critical mineral requirement that calls for 40 percent of minerals to be sourced from the U.S. or countries with free trade agreements with the U.S. The percentage will be raised to 80 percent from 2027.
Industry experts predict that it will be difficult for Korean battery manufacturers to meet the mineral requirement because they are excessively dependent on mineral imports from China. For this reason, many domestic firms are trying hard to diversify the source of mineral imports.
LG Energy Solution, a leading EV battery maker affiliated with the LG Group, struck a deal with a U.S. firm to secure lithium carbonate. It also signed a contract with an Australian company to import natural graphite.
SK on, a battery-making arm of the SK Group, initialed long-term contracts with Australian and Chilean businesses to get a stable supply of lithium.
Samsung SDI, another major battery producer under the wing of Samsung Group, has teamed up with ECOPRO BM, a local firm specializing in battery materials, to set up a cathode material making factory in Pohang, North Gyeongsang Province.
An industrial watcher said the domestic firms’ efforts to reduce their dependence on Chinese imports are insufficient to meet the U.S. mineral requirement for tax incentives. He called on the government to provide more support to boost battery exports to the U.S.
A research institute affiliated with the Export-Import Bank of Korea suggested that the country’s three major battery makers -- LG Energy Solution, SK on and Samsung SDI -- should invest at least a combined $10 billion every year to maintain their current global EV battery market share estimated at 26 percent.
The KITA said in a report last month that the country needs to revive its overseas resources development support projects, urging the government to push for multilateral pacts with major resources exporting countries to secure key materials for the manufacture of not only batteries, but also semiconductors and other high-tech products.
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