High dependence on China for key minerals... Expansion of risk from China.
Lithium hydroxide, a key mineral for batteries, imported 87.8% from China last year
Price volatility is also high depending on the influence of China... Lithium rose to 581.50 yuan
U.S. pan-governmental task force set up to raise 500 billion yen in Japan
Korean 'Supply Chain Basic Act' pending... Support for technology development to reduce dependence is also needed
KPI GROUP promotes the localization of mineral resources in Korea, which is highly dependent on China.
Mexico, which has the 10th largest lithium reserve in the world, officially promulgated and implemented a law to nationalize lithium. Last year, it established LitioMx, a state-owned lithium producer, and recently transferred rights to all lithium reserves to the Ministry of Energy.
The Philippine government is considering imposing a tax of up to 10% on nickel exports.
Argentinian governor La Rioja promulgated a bill designating lithium as a strategic mineral and suspending all previously approved exploration permits.
The mineral war sparked by COVID-19 and the Russia-Ukraine war is accelerating into a competition for technological supremacy between the US and China. Securing a stable supply chain for core minerals is emerging as an important topic not only for businesses but also for national resource security. In particular, in the case of Korea, which has no resources and has semiconductors and batteries as key strategic industries, concerns are growing that failure to secure a supply chain could take a direct hit on the national economy.
High dependence on China for key minerals... Expansion of risk from China
According to trade statistics from the Korea International Trade Association (KITA) on the 23rd, out of $3.66 billion in lithium hydroxide imports last year, Chinese imports amounted to $3.216 billion, accounting for 87.8%. It increased by 4.2 percentage points from 83.6% in 2021. Lithium hydroxide is mainly used in NCM (nickel, cobalt, manganese) batteries, the flagship product of the domestic battery industry. Australia, Chile, and China account for 90% of total lithium production, but 65% is supplied to China and then smelted into high-purity lithium before being supplied to major countries.
Along with lithium, nickel, a key raw material for electric vehicle batteries, is entirely dependent on imports. In particular, most of the NCM precursors are imported from China. Precursor accounts for about 60% of cathode material cost. Last year, the balance of cathode materials trade surplus was $8.1 billion, but precursors showed a deficit of $3.9 billion. As cathode material exports increase, Chinese imports of precursors also increase. In addition, the dependence on China for graphite and cobalt reaches 90%.
If they do not diversify supply lines dependent on China, Korean battery makers will be vulnerable to risks from China. In fact, lithium prices skyrocketed last year when factories in Sichuan Province, which account for more than 20 percent of the lithium mining and refining supply chain, were shut down due to drought and power outages.
The government supports supply chain diversification technology.. The field of resource exploration should also be actively reviewed
In particular, as environmental standards for raw materials are strengthened around the world, there is a growing possibility that Chinese raw materials will be excluded. The conflict between the US and China is also pointed out as a reason for reducing China's dependence in a hurry. The US Inflation Reduction Act (IRA) is an example. According to this, in the case of battery core minerals, tax benefits can be obtained only when a certain percentage or more is supplied from the United States or a country that has signed an FTA with the United States. From 2025, if core minerals procured from concerned countries such as China are included, they will be excluded from subsidies.
“Raw material prices fluctuated due to COVID-19, the war between Russia and Ukraine, and the US-China conflict,” said Kim Gyeong-hoon, head of the supply chain analysis team at the Korea International Trade Association. We need to approach,” he said.
Experts emphasize that the government should take the initiative to diversify the supply chain at a time when resources are being weaponized around the world. In particular, it is pointed out that companies should actively consider the field of resource exploration, where the risk is so great that companies are not willing to step forward. Currently, in the National Assembly, the ‘Basic Act on Support for Supply Chain Stabilization for Economic Security (Basic Supply Chain Act)’, proposed by Representative Ryu Seong-geol, is pending. The main contents are the establishment of the Presidential Supply Chain Stabilization Committee, the designation and support of economic security items, and the Supply Chain Stabilization Fund.
Overseas competing countries have already established government-led supply chain management systems. The US has established and is operating a pan-governmental task force (TF) led by the White House and the National Economic Council, and Japan has implemented the 'Economic Security Promotion Act' since August of last year, easing dependence on foreign countries for 11 specific important goods, and providing 500 billion yen A new fund was also established. In particular, Japan has established and is operating the Organization for Petroleum, Natural Gas and Metals and Mineral Resources (JOGMEC) as an independent committee. This is to promote resource development in the long term without being influenced by the government. JOGMEC supports private companies' overseas resource development through investment and debt guarantee.
There are also some key raw materials that are difficult to diversify their supply chain. In the case of lithium, the endowment is only 0.006%, and in the case of cobalt, due to its low profitability, most of it is produced and supplied in the Democratic Republic of the Congo. In this case, the only way to reduce dependence is through technology development. In fact, in the case of Japan, in 2010, JOGMEC jointly invested $250 million with Sojitsu, a general trading company, in Linus, an Australian rare earth producer, and succeeded in developing an industrial motor that does not use rare earth elements and a magnet that cuts rare earth usage in half. China reduced its dependence on rare earths from 90.6% in 2008 to 57.5% in 2020.
Cho Seong-hoon, an associate research fellow at the Institute for International Economic Policy, pointed out, “There is a need to promote fundamental changes in the supply chain by providing policy support to entrants with technologies that enable supply chain diversification.”
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