LG Chem and Huayou Cobalt to build precursor factory

LG Chem is building a 1.4 trillion won ($1.1 billion) precursor factory with Zhejiang Huayou Cobalt in Gunsan, North Jeolla, according to local reports.

LG Chem headquarters in Yeouido, western Seoul [YONHAP]

LG Chem is building a 1.4 trillion won ($1.1 billion) precursor factory with Zhejiang Huayou Cobalt in Gunsan, North Jeolla, according to local reports.

Executives of the two companies including LG Chem CEO Shin Hak-cheol are expected to sign a memorandum of understanding (MOU) on March 19, though LG Chem declined to comment.

The plant, which will be located in Saemangeum, a reclaimed area on the country's southwest coast, will have annual production capacity of 50,000 tons, equivalent to powering about 600,000 electric vehicles.

Ground will be broken within the year, with the goal of completion in 2028.

Precursors are raw materials used to make cathodes and are produced by combining materials such as nickel, cobalt and manganese. They account for 70 percent of the cost of cathodes, the material that accounts for 40 percent of battery costs.

The latest plant will up the Korean company’s precursors production capacity to 70,000 tons. LG Chem is currently building a 20,000-ton precursor factory with Korea Zinc in Ulsan, which will start operating in the second quarter of next year.

The possible cooperation is LG Chem’s latest efforts to reduce its dependence on China to qualify for up to a $7,500 subsidy the U.S. government offers to electric vehicles that are assembled in North America.

Under the newly announced rules of the Inflation Reduction Act (IRA), in order to qualify for $3,750 of the credit, 40 percent of the critical-mineral value of the vehicle’s battery have to come from the United States or countries with which the United States has signed FTAs.

But a vehicle will be eligible for the credits when over 50 percent of the critical-mineral value of the electric vehicle comes from either extraction or processing of the critical minerals.

That means that a vehicle can still receive the incentives if LG Chem will be able to produce the precursor in Korea, though the minerals themselves are from China.

In a similar move, Korean battery maker SK On announced in March that it will build a 1.21 trillion-won manufacturing facility in Saemangeum in a joint project with local materials producer EcoPro and China's Green Eco-Manufacture (GEM).

Of all precursors used in Korea, 95.3 percent were imported from China last year, according to data from the Korea International Trade Association.

BY SARAH CHEA [chea.sarah@joongang.co.kr]