Korea's Dependence on Chinese Battery Materials Grows

Korea is increasingly dependent on China for core materials for rechargeable batteries for electric vehicles. China has a near-monopoly on rare minerals and materials used for EV batteries and sales of EVs are surging around the world. 

According to the Korea International Trade Association on Monday, China accounted for a whopping 80 percent of Korea's total imports of lithium hydroxide, cobalt and natural graphite in the first seven months of this year. 

Imports of lithium hydroxide from China totaled US$1.47 billion, or 84.4 percent of the total, while cobalt and natural graphite imports stood at $127.4 million and $64.5 million to account for 81 percent and 89.6 percent. 

Lithium hydroxide is a key material in the manufacture of high-nickel batteries that can power an electric car more than 500 km on a full charge. In 2018, Chinese lithium hydroxide accounted for 64.9 percent of Korea's total imports of the material, but the amount surged to 84 percent last year. In money terms, imports from China from January to July already surpassed last year's total. 

One source at a battery maker said, "There are so many lithium hydroxide manufacturers in China, which is causing the proportion of imports to increase." 

Korea's imports of cobalt from China, which boosts the output voltage and stability of rechargeable batteries, rose from around 50 percent in 2019 to more than 80 percent now, while imports of natural graphite, a key component of anode materials, rose from the low 80-percent range in 2018 to 89.6 percent now. 

According to market analysts BMI, China is home to 80 percent of 142 cathode material makers in the world and 78 percent of 156 anode material makers. Four out of the world's top five lithium manufacturers have factories in China, and all six of the biggest graphite makers are based there. 

Because nearly all refining and manufacturing plants are clustered there, the world's reliance on China for minerals is increasing. 

The Korean government has inadvertently deepened reliance on China by waiving five to eight percent duties on battery material imports. Park Chul-wan at Seojeong University said, "After the government waived duties on cathode raw materials last year, businesses started turning to imports instead of sourcing the materials here. The government virtually destroyed the domestic industry." 

One danger is the U.S. government's new Inflation Reduction Act that will cut subsidies on EVs using batteries with Chinese materials from 2024. EVs only qualify for U.S. tax credits if their batteries are made with materials supplied in North America or from a country that has a free trade pact with the U.S.

That means Korean manufacturers will find themselves at a huge disadvantage unless they change their sourcing now.