POSCO: Leading the Shift to South Korea for Battery Materials Production
The Push to Shift Battery Materials Production from China to South Korea
Korean conglomerate Posco is at the forefront of a significant movement to relocate the production of battery materials from mainland China to South Korea. This shift comes as companies worldwide strive to qualify for US tax incentives that are reshaping the global electric vehicle (EV) supply chain. The Inflation Reduction Act (IRA), President Joe Biden’s flagship climate legislation, offers substantial subsidies to electric vehicle and battery manufacturers who source components from the United States and its free-trade partners instead of China.
While this legislation aims to reduce dependence on China and boost domestic production, Korean manufacturers of anodes and cathodes for electric vehicle batteries, such as LG Energy Solution and Samsung SDI, still rely on Chinese partners for sourcing and refining critical minerals. China currently dominates the supply chain of minerals essential for clean technologies, accounting for approximately 90% of the world’s rare earths. To comply with the IRA, South Korean companies are forming joint ventures with Chinese partners to establish domestic facilities and produce materials that meet the new requirements.
Posco, a leading steelmaker aggressively expanding into the battery business, is strategically targeting the thriving electric vehicle market in the United States. The company is building a supply chain for IRA-compliant materials, aiming to eliminate any production or procurement from China. Posco plans to source nickel from Australia and process it in Korean facilities, ensuring a complete shift away from Chinese suppliers. However, Posco recognizes that Chinese companies will continue to play a significant role in the supply chain, particularly in areas like nickel and graphite processing where they hold expertise.
In pursuit of IRA compliance, Posco’s battery materials subsidiary has signed a memorandum of understanding with China’s Zhejiang Huayou Cobalt to co-produce materials in Korea. Additionally, Posco has announced a $1.2 billion joint venture with China’s CNGR Advanced Material to produce high-nickel cathode materials on the Korean peninsula’s southeast coast. The company is also exploring partnerships with Korean and Chinese conglomerates to establish battery recycling facilities in Korea.
The Challenges of Reducing Reliance on China
Despite the efforts being made to shift away from Chinese suppliers, completely severing ties with China in the battery materials industry proves to be challenging and costly. Lee Kyung Sub, head of the battery materials business at Posco, acknowledges the difficulty of achieving complete independence from China. Chinese companies currently hold an upper hand in key areas such as nickel and graphite processing. While joint ventures are being transferred from China to Korea, the level of Chinese ownership acceptable to meet IRA compliance remains unclear.
Nonetheless, Posco’s commitment to the battery industry as a key driver of its future growth remains unwavering. The company plans to allocate 43.6% of its capital expenditures between 2023 and 2025 to the battery materials business, surpassing its investment in steel. This shift in focus highlights the immense potential and strategic importance of the electric vehicle market.
Industry-wide Shift and Partnerships
Posco’s strategy aligns with other influential players in the Korean battery industry. Korean battery maker SK On and materials maker EcoPro have partnered with Chinese GME Resources to establish joint ventures for battery production in Korea. Additionally, LG Chem, a major player in the battery market through its subsidiary LG Energy Solution, has formed a partnership with Zhejiang Huayou Cobalt.
Tim Bush, a Seoul-based battery analyst at UBS, emphasizes the historical collaboration between Korean battery companies and their Chinese counterparts. What sets the current situation apart is the transfer of these joint ventures from China to Korea. However, the implications of Chinese ownership in joint ventures for the US market remain uncertain, pending further clarification from Washington.
The Benefits and Challenges on the Path to Energy Transition
The shift in battery materials production from China to South Korea represents a significant milestone in the global energy transition. While the Inflation Reduction Act incentivizes localization and diversification, reducing dependency on China, challenges persist in achieving complete independence. However, companies like Posco are embracing these challenges and forging partnerships to establish a more diversified and resilient supply chain for battery materials. Key insights and perspectives on this shift include:
- Reducing reliance on China in the battery materials industry requires careful planning, collaboration, and investment in domestic production capabilities.
- Partnerships between Korean and Chinese companies are crucial in establishing joint ventures that comply with US regulations, while gradually reducing Chinese ownership.
- The US market poses unique challenges and uncertainties regarding the acceptable level of Chinese participation in joint ventures producing components for electric vehicles.
- Posco’s commitment to the battery materials business demonstrates the immense growth potential and strategic importance of the electric vehicle market.
- The shift to South Korea for battery materials production contributes to a more diversified and resilient global supply chain, reducing risks associated with overdependence on a single country.
While challenges persist, the ongoing transition presents significant opportunities for innovation, investment, and sustainability in the battery materials industry. As governments worldwide focus on achieving carbon neutrality and decarbonization, the demand for electric vehicles and their components continues to rise.
Conclusion
The push to shift battery materials production from China to South Korea represents a crucial step in reshaping the global electric vehicle supply chain. Posco, as a leading Korean conglomerate, is at the forefront of this movement, actively pursuing partnerships and investments to establish a resilient and compliant supply chain for battery materials. While complete independence from China remains challenging, the collaborative efforts of Korean and Chinese companies contribute to a more diversified and sustainable industry landscape.
The ongoing shift carries profound implications for the future of electric vehicles, as well as the broader energy transition towards a low-carbon economy. Despite uncertainties and challenges, the commitment of industry stakeholders, like Posco, highlights the transformative potential and immense opportunities that lie ahead in the battery materials sector.
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Korean conglomerate Posco is leading a push to shift production of battery materials from mainland China to South Korea as companies around the world adjust to qualify for US tax incentives reshaping the global EV supply chain .
The Inflation Reduction Act (IRA), US President Joe Biden’s flagship climate legislation, offers billions of dollars in subsidies to electric vehicle makers and battery makers to source components from the United States and its free-trade partners rather than China.
But Korean manufacturers of anodes and cathodes in electric vehicle batteries made by LG Energy Solution, Samsung SDI and others still rely on Chinese partners to source and refine some critical minerals. China check the supply chain of dozens of minerals for clean technologies, which produce about 90% of the world’s rare earths.
In recent months South Korean companies have formed a number of joint ventures with Chinese companies to establish domestic facilities and produce materials that will qualify as IRA compliant.
Lee Kyung Sub, head of the battery materials business at Posco, a steelmaker that is aggressively expanding into the battery business, said the company is targeting the booming electric vehicle market in the United States.
Posco is building a supply chain for IRA-compliant materials where “nothing will be produced or purchased in China,” Lee said, during an interview at Posco’s Seoul headquarters.
“The nickel needed for the North American market we will recover from Australia and it will go through the smelting process in a Korean facility.”
But he acknowledged that Chinese companies will continue to play an important role in the supply chain due to their “upper hand” in areas including nickel and graphite processing.
In May, Posco’s battery materials subsidiary signed a wide-ranging memorandum of understanding with China’s Zhejiang Huayou Cobalt to co-produce materials in Korea for the cathodes and anodes used in lithium-ion batteries.
In June, Posco announced a $1.2 billion joint venture with China’s CNGR Advanced Material to produce high-nickel cathode materials on the southeast coast of the Korean peninsula. The two companies also operate a battery recycling plant in Korea together with Korean conglomerate GS Group.
“It is very difficult and exorbitantly expensive to be completely free from China,” Lee said.
Posco’s strategy is shared by many other leading players in the Korean battery industry. Korean battery maker SK On and materials maker EcoPro have partnered with Chinese GME Resources to produce battery companies at a plant in Saemangeum in southwest South Korea, while LG Chem, one of the second largest batteries in the world LG Energy Solution, has also formed a partnership with Zhejiang Huayou Cobalt.
“Korean battery companies have always partnered with the Chinese,” said Tim Bush, a Seoul-based battery analyst at UBS. “The difference now is that the joint ventures are being transferred from China to Korea.”
Bush noted that Washington has yet to clarify what level of Chinese ownership will be allowed in joint ventures that produce components for the US market.
While US officials are likely to tolerate some Chinese participation in joint ventures, he said, “a majority-Chinese entity anywhere in the world is highly unlikely to be considered compliant with the Inflation Reduction Act.”
One of the top ten steelmakers in the world, Posco’s market capitalization has more than tripled in the past three years as investors pile up Korean battery stocks.
The conglomerate has embraced the battery industry as a major driver of its future growth. It will devote 43.6 percent of its capital expenditures to the battery materials business in 2023-2025, more than it will invest in steel, compared to 13.6 percent between 2016 and 2018.
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