Preparation For Core Raw Material
Battery Industry Braces for Cathode Material Cobalt Shock through Vertical Integration
The secondary battery industry is strengthening its efforts to brace for a hike in core raw material prices, such as cobalt, lithium and nickel.
Seoul, Korea
22 January 2018 - 9:15am
Jung Min-hee
The secondary battery industry is accelerating vertical integration ranging from supply and demand of raw materials to processing of intermediary materials as its efforts to brace for a hike in core raw material prices, such as cobalt, lithium and nickel.
According to industry sources on January 18, LG Chem Ltd. aims to more than triple its cathode material production facilities based on its cathode material business division acquired from GS Energy Corp.’s subsidiary GS EM in 2016. Cathode material is a core secondary battery intermediary material made from the combination of mineral raw materials, like cobalt, lithium and nickel.
Samsung SDI Co. is also considering the expansion of its cathode material production lines. LG Chem and Samsung SDI, which are still supplied with most of cathode materials from Umicore Korea Ltd., Ecopro Co. and L&F Co., are seeking to increase their self-sufficiency rate to half of their supplies.
The two companies are also trying to obtain mineral raw materials on their own. LG Chem secured a 10 percent stake in nickel sulfate producer Kemco last year, while Samsung SDI was qualified as one of the seven short-listed bidders for a lithium mining and refining plant construction project hosted by the Chilean state development agency CORFO.
The price of core secondary battery raw materials surged. According to Korea Mineral Resource Information Service (KOMIS), the price of cobalt stood at US$77,000 (82.27 million won) per ton as of the 17th, showing a whopping 133 percent increase from January 3 last year. The price of lithium and nickel jumped 31.6 percent and 45.8 percent, respectively, over the same period. This is largely due to a growing demand of secondary batteries caused by the increase in electric car production. Cobalt prices skyrocketed partly owing to an unstable political situation in its major producer Congo.
However, such raw material price hikes will not lead to poor performance in the industry. According to average performance forecasts from securities companies, such as KB Securities Co., Hana Financial Investment Co., and HI Investment & Securities Co., the battery division of Samsung SDI and LG Chem’s battery is expected to post 184.3 billion won (US$172.48 million) and 64.8 billion won (US$60.65 million) in operating profit, respectively, this year. When the two companies achieve performance that is about the same as the forecasts this year, their battery division will turn a profit together for the first time in five years.
Cathode material producers, which are more sensitive to raw material prices than secondary battery manufacturers, showed better performance. Ecopro and L&F posted 18.1 billion won (US$16.94 million) and 22.3 billion won (US$20.87 million) in cumulative operating profit from the first to third quarter last year, respectively, up 151.3 percent and 209.7 percent from a year earlier.
They import raw materials through a long-term contract with their major foreign suppliers, including China. Therefore, the price hikes are not directly reflected into production costs. However, the industry is seeking to prepare for possible prolonged price hikes in advance through vertical integration, boosted by the growth in secondary battery demands.
The industry is also bracing for the rise in raw material prices through negotiations over battery raw material price linkage systems with the electric car industry. However, there is a general consensus among experts that this has limits because it leads to the increase in electric car prices and it can slow the rate of extension of not only the electric vehicle market but also the battery market.
An official from the industry said, “Mineral resources are developed by mainly China. So, there will be limits to compete with Chinese secondary battery companies through vertical integration alone. Ultimately, the long-term resource development overseas at the government level is needed.”
http://www.businesskorea.co.kr/engl...ttery-industry-braces-cathode-material-cobalt
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