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South Korea produces almost half of the world’s batteries for electric vehicles, but as demand for EVs is rising, the country’s battery makers are facing shortages of a range of materials, as the global commodities supercycle gains momentum (“Commodities Supercycle Underway?” 11 May, 2021).
The country has relied on imports of rare earth minerals and other commodities, most of which come from China.
As we note in this Trends Journal, South Korea, has a prickly relationship with China that we forecast they will not jeopardize. (See “SOUTH KOREA’S BOTTOM LINE: THEY WON’T SUPPORT TAIWAN OR U.S. AGAINST CHINA.”)
And understanding the reality of China having banned cross-border tourism and Hyundai cars in 2016 after South Korea hosted a U.S. missile array, Seoul will do what it must not to upset its important trading partner.
South Korea’s relations with Japan also are strained, with Japan capping exports of its computer chips to the country in 2019.
South Korea’s manufacturers of rechargeable batteries increased their global market share from 35 percent in 2018 to 44 percent in 2020, according to SNE Research and B3 Intelligence, but relied on imports for 60 percent of their materials, according to Kim Kyung-man, a legislator of the ruling Democratic Party.
“Our country is a battery powerhouse,” he said, “but we fear becoming a profitless intermediary due to heavy dependence on imports.”
He called for “large-scale support” for developing domestic and alternative supplies of key materials.
The global annual EV battery market is expected to grow tenfold by 2030 to $304 billion, SNE has predicted, and South Korea will invest the equivalent of $34 billion by then to maintain market dominance, the government has vowed.
“Importing materials could be cheaper, but [South Korea] is trying to increase domestic supply, given increasing global supply chain risks,” Lee Hang-koo at the Korea Automotive Technology Institute told the Financial Times.
China is the second largest maker of rechargeable batteries for EVs, at 33 percent market share, followed by Japan at 17 percent, giving both countries an incentive to short South Korea on needed materials.
Posco, a South Korean steel company, is building a plant to extract lithium hydroxide, a key component in EV batteries, from ores supplied by Pilbara Minerals, an Australian mining firm.
TREND FORECAST: China, which holds the world’s largest deposits of rare earth minerals and controls about 80 percent of their current supply, will put limits on mining and exporting 17 of the minerals, which are essential to components in everything from DVD players to smart bombs and MRI machines.
The limits would “protect national interest and ensure the security of strategic resources” and would be administered by the country’s security and military agencies, China’s Ministry of Industry and Information Technology said.
And while nations such as South Korea are taking measures to extract rare earth minerals, as we reported, it will take years to extract and process them, thus China’s near-monopoly on the world’s rare earth minerals will continue.
Also, China holds more than a third of the world’s estimated rare earth reserves; the U.S. has slightly more than a tenth of one percent, according to data from Statista.
When the U.S. does produce rare earths, they are currently sent to China for processing and refining. The U.S. lacks refining capacity because of the pollution created in processing.