Battery makers bet big on materials as they fight price jumps

Facing a sharp rise in raw material costs and intense competition, Korean battery manufacturers are betting big on materials with mining investments and long-term contracts and by buying into technology that can extract key elements

Facing a sharp rise in raw material costs and intense competition, Korean battery manufacturers are betting big on materials with mining investments and long-term contracts and by buying into technology that can extract key elements from used batteries.

Geopolitical realities also play into the desire to lock in access to resources, as Chinese control of so much of what goes into batteries is seen as an unacceptable chokepoint for which a workaround is needed.

"There is risk in material sourcing at the moment," LG Energy Solution CEO Kwon Young-soo said recently ahead of the company's initial public offering.

The price of lithium carbonate, which is used in the making of cathodes, is up 445 percent over the past year, according to the Korea Mineral Resource Information Service. Nickel is up 21 percent and cobalt by 113 percent.

In 2022, the price per kilowatt-hour for EV batteries is set to rise for the first time in at least a decade — possibly the first rise ever. LG Energy Solution and Samsung SDI increased the prices of their cylindrical batteries, which mostly go into small electronic devices, by a minimum of 7 percent recently.

The increase in the prices of materials has been driven by the frenzy for electric vehicles globally, as companies and governments commit themselves to speeding up the transition away from internal combustion engines just as the pandemic causes labor shortages and production shutdowns.

Taking China out of the equation is high on the list of priorities.

Eighty-two percent of lithium hydroxides imported into Korea come from China, according to the Korea International Trade Association, as do 85 percent of cobalt hydroxides and 50 percent for nickel hydroxides.

"Price increases in battery materials is not a temporary thing but is expected to be a permanent phenomenon with China grappling with supply chain issues amid the soaring demand for eco-friendly vehicles," said Park Chul-wan, professor of automotive engineering at Seokyung University.

"Reliance on Chinese imports needs to be addressed in order for Korea's battery industry to further grow."

━ Long-term contracts

"Materials sourced from China have higher uncertainty, and we are trying to diversify our supply chain for stability," said Kwon of LG Energy Solution.

Going for long-term contracts is one way of stabilizing supply, as it locks in price, sometimes linking it to the end-product price, and ensures availability even in tight market conditions.

"It is a win-win for both the battery makers as well as the suppliers," an LG Energy Solution spokesperson said.

On Jan. 12, the company signed a long-term contract with West Perth, Australia's Liontown Resources to source 700,000 dry metric tons of lithium ore concentrate for five years starting 2024.

That is enough to produce batteries for 2.5 million EVs.

The company acquired 4.8 percent of Shanghai's Greatpower Nickel & Cobalt for 35 billion won in September and signed a long-term contract with the mining company for the supply of 20,000 tons of nickel for six years starting 2023.

On Aug. 16, it signed a six-year agreement with Brisbane's Australian Mines Limited to purchase 71,000 dry metric tons of nickel and 7,000 dry metric tons of cobalt from the end of 2024.

SK Innovation in 2019 signed a six-year deal to buy 30,000 tons of cobalt from Baar, Switzerland's Glencore, starting from 2020.

━ Recycling and beyond

SK Innovation researcher holds up a bottle of recycled lithium hydroxide. [SK INNOVATION]

Recycling used batteries is rising as an alternative source for the supply of key materials.

In December, LG Energy Solution and parent LG Chem invested 60 billion won in Mississauga, Canada's Li-Cycle for a 2.6 percent stake and access to 20,000 tons of nickel for a decade starting 2023. That is enough for 300,000 EVs.

Ultium Cells, a 50-50 joint venture between General Motors and LG Energy Solution, formed a partnership with Li-Cycle for material recycling.

SK Innovation has been researching ways to extract lithium hydroxide from used batteries since 2019 and owns 54 related patents. The extracted lithium hydroxide can be used in the manufacturing of high-nickel lithium-ion batteries, the company said.

The company set up a Battery Metal Recycle (BMR) division last year. SK Innovation CEO Kim Jun said the company will start building its first BMR factory this year, and it will reportedly be near one of its overseas facilities, which are located in the United States, Europe and China.

Samsung SDI purchased a stake in Korea-based battery recycling company PM Grown in 2019, although details have not been disclosed.

"Signing long-term contracts or recycling metals from used batteries will be of help to material sourcing in a short-term," said Professor Park.

"But ultimately, a broader solution is needed on a government and diplomatic level to help Korean companies source materials more easily at a stable price."

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]