More Appealing
This year has seen a rush of huge investments by Chinese battery materials makers partnering with Korean companies. In just four months, about five trillion won worth of joint ventures have been announced, led by major companies such as SK On and LG Chem. This is the exact opposite of a previous situation when Korean battery makers entered China, established joint ventures, and made large-scale investments.
On May 3, POSCO Future M (formerly known as POSCO Chemical) announced that it will establish a joint venture with China's Huayou Cobalt, the world's largest cobalt miner, to build a precursor production line at the Blue Valley Industrial Complex in Pohang, North Gyeongsang Province, with an investment of 1.2 trillion won. Precursors (nickel-cobalt-manganese compounds) are key materials for cathode materials. They account for 40 to 50 percent of the unit cost of batteries, and about 90 percent are imported from China, making Korea highly dependent on China for the material. This time, POSCO Future M has decided to build the plant in South Korea rather than in China.
LG Chem is also partnering with Huayou Cobalt to build a precursor plant in the Saemangeum National Industrial Complex in Gunsan, North Jeolla Province, with an investment of 1.2 trillion won. Earlier, in March, SK On and Ecopro Materials announced a plan to invest 1.21 trillion won in a precursor plant in the Saemangeum Industrial Complex in partnership with China's GEM.
Announced investments exceed five trillion won in total including the 1 trillion won investment by China's CNGR, the world's largest precursor company which is currently looking for a joint venture with a Korean company and China-based Ronbai’s one-trillion-won expansion of a cathode material plant through its Korean subsidiary.
Industry analysts say that Chinese battery makers hit hard by the U.S. Inflation Reduction Act (IRA) see South Korea as a detour. According to detailed guidelines of the IRA, a battery maker must source at least 40 percent of its battery minerals from the United States or a country with a free trade agreement (FTA) with the United States to qualify for tax credits. Chinese companies can also enjoy corporate tax breaks in places like the Saemangeum Industrial Complex in Korea.
Chinese companies have a rosy investment plan but variables still remain. The U.S. IRA is set to exclude electric vehicles containing key minerals or battery components from foreign entities of concern (FEOCs) from tax credits starting in 2025 and an IRA white paper released late last year already designated China as an FEOC. Joint ventures with Chinese companies may be regarded as FEOCs in the specific scope of an FEOC rule application in the IRA to be announced in the future.
Nevertheless, Chinese companies are expanding their presence in the strong Korean battery market. In January 2023, China's Hangke Technology, which has supplied battery equipment to SK On and others, announced a US$30 million (about 40 billion won) investment in HK Power, a joint venture with Korean battery maker Vitzro. Another Chinese equipment maker, Lyric Robot, recently established a Korean branch and is in talks with Korean companies over forging partnerships. “Chinese companies are actively entering the Korean market, keeping in mind that U.S. regulations against Chinese companies will be expanded to the equipment sector in the future,” an industry insider said.