ft.com
Asian battery makers jeopardise raw materials access by delaying deals
Christian Davies and Song Jung-a in Seoul and Nic Fildes in Sydney November 5 2022
6-7 minutes
Receive free Energy sector updates
We’ll send you a myFT Daily Digest email rounding up the latest Energy sector news every morning.
Some of Asia’s biggest battery makers are jeopardising their access to sufficient raw materials by holding back on direct investments in producers in Australia that supply them.
Industry insiders told the Financial Times that more deals need to be signed in order for South Korean companies — including LG Energy Solution, SK On and Samsung SDI — to secure supplies of minerals to make electric-vehicle batteries, including graphite, lithium, nickel and cobalt.
“We are not seeing anywhere near enough deals being completed,” said Ross Gregory, executive director of electric vehicle consultancy New Electric Partners and chair of the Australian Chamber of Commerce in Korea. “It’s inevitable that the Korean cell makers need to invest more to secure supply.”
According to Benchmark Mineral Intelligence, at least 384 new mines for critical minerals will be required to meet global battery demand by 2035, with demand for lithium-ion batteries projected to grow six-fold by 2032. South Korea produces a quarter of the world’s EV batteries and is an important partner for Washington, as the Biden administration works to reduce its dependence on China.
But despite the US rolling out new tax breaks under the Inflation Reduction Act to boost domestic production and encourage producers like South Korea to work with free trade partners such as Australia, the necessary dealmaking between the latter two countries is not accelerating.
Tim Bush, a Seoul-based EV battery analyst for UBS, said Korean battery makers were being cautious because of lingering uncertainty over how the act will be implemented. He noted the US government had not yet spelt out precisely what degree of Chinese involvement in an individual battery’s supply chain would disqualify it from receiving valuable tax credits.
“The Korean battery firms are waiting to see what’s allowed and what’s not allowed before pulling the trigger on major investments,” said Bush. “For example, if Chinese processors are not going to be allowed to be involved even in projects outside China, the Koreans will have to rethink their strategy.”
The critical minerals needed to meet global battery demand by 2035
Most critical minerals mines in Australia are still operated by small companies seeking joint ventures or direct equity investments in individual projects. However, Korean battery makers have been hesitant to sign deals that they perceive as risky.
“We are currently evaluating such investment requests but we are trying to be careful. These requests often delay the signing of our long-term supply contracts with them,” said a Korean battery executive.
Korean export credit agencies bear the scars of failed mining ventures in the past. “Our state-run credit agencies often provide funding for developing overseas mines, but these projects are very risky as mineral prices are volatile,” said a Korean energy ministry official.
“The battery companies invest in some mining projects if needed, but they remain reluctant to invest much given the growing need to build their own battery and battery materials plants,” the official added.
An Australian banker who specialises in mining deals said Korean companies and lenders were being too cautious.
“There is a frustration around Korean involvement in Australian mineral projects because of a clash with the wheeler-dealer culture of Australian exploration,” said the banker. “There is a real danger of Korea being left behind.”
There are some deals going ahead. Last month, SK On acquired a 10 per cent stake in Australia’s Lake Resources, a long-established lithium developer, as part of a 10-year lithium supply deal.
World’s biggest EV battery manufacturers
Gregory, who advised Lake Resources on its deal with SK On, said part of the Korean battery makers’ hesitancy was because they had backgrounds in the chemicals sector rather than in mining.
He noted that Posco, the Korean steelmaker, had been much more active in making investments in the battery supply chain than LG, SK or Samsung due to its history of investing in iron ore and other projects.
Posco and LGES were both backers of Queensland Pacific Metals, which is developing a nickel and cobalt processing plant in Townsville. Last month, Queensland signed a major investment deal with General Motors, a sign that US carmakers are ramping up their interest in the Australian minerals supply chain.
Gregory urged the Australian government to step in and finance more deals, including by taking direct stakes in projects.
“What’s missing is the government support — China does it, the US is starting to do it but Australia doesn’t yet do enough,” said Gregory.
“A$20bn-A$30bn should go into sponsoring not only the exploitation of upstream resources but also the establishment of a manufacturing industry to process those materials. The industry needs a leg up.”
But given the global scramble to secure resources, some executives believe it is only a matter of time before Korean battery companies become more aggressive.
Andrew Penkethman, chief executive of Ardea Resources, whose Kalgoorlie Nickel Project hosts the largest nickel-cobalt resource in Australia, said he could afford to wait for the right deal.
“We’ve seen a marked increase in engagement from potential strategic partners since the Inflation Reduction Act, but people are still working out how to go about it,” he said.
He said he expected Korea’s battery makers to come around to the idea that direct investments in projects would be necessary in order to secure long-term supply.
“We will see an acceleration in deals being completed in the lithium-ion battery sector and our patience will be rewarded.”
(20min delay)