Korea's Battery Industry Over-Dependent on Chinese Materials

Korea's burgeoning rechargeable-battery industry is alarmingly dependent on China for four core materials, raising concerns of potential supply shortages and hostage-taking by the increasingly assertive superpower.

The acute shortage of diesel exhaust fuel Korea suffered when China curbed exports of urea recently was a stark warning of what could lie in store. Already battery prices are expected to rise next year for the first time after cracks began to appear in the supply chains dominated by China, and China's low-tech industries could easily bring Korea's high-tech sector to its knees.

China dominates the market for the four main materials that are used to manufacture rechargeable batteries -- cathodes, anodes, membranes and electrolytes. The materials account for 50 percent of battery manufacturing costs and cathodes for 44 percent, and China controls 58 percent of the global cathode market, while Korea accounts for only nine percent.

And even then for that small proportion Korea must import from China almost all of the nickel, cobalt and manganese powder that are used to make cathodes. The Democratic Republic of the Congo accounts for 78 percent of the cobalt mined around the world, which is the most expensive ingredient, and China controls the mines in that country and processes 72 percent of the mined mineral.

Some 61 percent of the lithium mines in Australia and Chile are also Chinese-owned. One battery industry insider said, "Utility costs are cheap in China, which enables it to dominate the processing of core raw materials. Although that process does not require a high level of technology, battery production is impossible without China."

Kim Kwang-ju of SNE Research said, "The price of Chinese-made lithium that goes into electrolytes rose from $15 per kg early this year to $80 recently. Unless we lower our dependence on China, we won't be able to deal with price volatility risks."

China also accounts for 66 percent of the global market for graphite anodes and recently succeeded in mass producing artificial graphite to supply to Korean manufacturers. POSCO Chemical manufactures natural graphite, but Chinese rivals boast unrivaled cost competitiveness.

Japan's Asahi Kasei used to dominate the global market for membranes, but now China's Shanghai Energy New Materials Technology began selling them at low prices and rose to the top.

According to Bloomberg last month, global battery prices are expected to rise 2.3 percent next year. Battery prices stood at $1,200 per 1kWh but dropped sharply to $140 last year and fell a further six percent this year. The car industry expects electric cars to become as affordable as combustion-engine cars if battery prices drop to $100 per 1kWh, but Bloomberg said that now sees unlikely to happen until 2026.

Park Chul-wan at Seojeong College said, "Under the current supply structure, Korea's battery industry is unsustainable. We need to diversify suppliers of raw materials and nurture our own industry."