Battery Giant LG Chem Prepares to Lock In Mineral Supplies

(Bloomberg) — LG Chem Ltd. is prioritizing efforts to secure raw materials used in electric-vehicle batteries and establishing a self-sufficient global supply chain, including via potential partnerships and investments in mining companies.

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“We are preparing ourselves first of all to secure supply of raw material, which is more important than the price,” LG Chem Chief Executive Officer Shin Hak-cheol said in an interview with Bloomberg Television in Seoul. “Our first and foremost priority is to secure enough raw material for the future.”

LG Chem makes cathode-active materials, a key ingredient for EV batteries. It is the parent of LG Energy Solution, the world’s second-largest battery cell maker and supplier for automakers including Tesla Inc., General Motors Co., Ford Motor Co. and Stellantis NV.

The South Korean company is doing “a lot of projects” to ensure it has a stable source of supply, according to Shin. “I don’t think we’ll ever be a mining company. However, if there’s a project that makes sense, maybe we can invest.”

The fragility of the EV industry’s supply chain has been exacerbated by disruptions caused by major global events such as the Covid pandemic and Russia’s war in Ukraine, driving up the cost of raw materials including metals like lithium, nickel, cobalt and manganese, which are used in batteries. While the price of lithium has weakened 13% this year, the material is still trading at sky-high levels after climbing 87% last year and almost 430% in 2021.

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Asked about the US Inflation Reduction Act, which aims to reduce the EV industry’s reliance on supplies from China, Shin said more clarity on policies was needed and that the industry expects further details to emerge before the end of March.

“Different elements and components need clarification,” he said, echoing comments he made in an interview with Bloomberg News in December. “You’re talking about a pretty complicated puzzle.”

The law requires companies to source battery minerals from countries that have free-trade agreements with the US to be eligible for $7,500 tax credits on EV purchases. Automakers have pushed back against the plan, arguing for leeway given the time it will take to secure materials. Many mines are located in emerging markets that don’t have FTAs with the US.

“I’m not sure even the US government has all the answers to satisfy everyone in the supply chain,” said Shin, adding that the IRA situation in the US is probably getting a disproportionate share of attention.

“Any country’s policy will change, it will not be the same,” Shin said. “LG Chem will be here for 50 years, 100 years, many, many hundreds of years more, so I’m not really basing my supply-chain strategy on one country’s policy, which is transient by definition”

“Long before IRA, we have been pursuing a global supply-chain strategy,” he said. “Our strategy is to be relatively self-sufficient in three mega regions of the world, and the US is just one of them.”

GM and LG Energy last month shelved plans to build a fourth plant in the US, though talks are ongoing and no final decision has been made, Bloomberg reported previously.

Shin held a joint press conference with US Treasury Secretary Janet Yellen during her visit to Seoul in July to stress the importance of “friend-shoring” in trade relationships.

“She wanted to learn about the battery industry in Korea and what are the implications of metals and how they’re made, where they’re coming from,” he said. “I asked about the US economy.”

LG Chem’s shares have risen about 12% this year, despite a blip earlier in February when the company’s fourth-quarter results missed analysts’ estimates, with its petrochemicals operations posting an operating loss of 166 billion won ($131 million). Shin said the traditional business was “going through the bottom of the downcycle.”

“We can only think about going up from here,” he said.

Still, the shares have gained 54% from a low in March last year.

LG Chem is also facing competition from established producers aggressively expanding capacity. The company aims to reduce its carbon content and move toward higher value applications through investing in sustainable materials such as biodegradable plastics, Shin said.

–With assistance from Adrian Wong and Andy Hung.

(Adds more on share price performance in penultimate paragraph.)