Korea Zinc expands nickel production to meet US battery demand

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Korea Zinc, the world’s largest zinc smelter by output, is expanding its nickel business and embracing battery materials to drive growth as it aims to capitalise on US efforts to reduce dependence on China in the global electric vehicle supply chain.

“This China decoupling momentum is creating great opportunities for us and Korea as a whole,” Park Ki-deok, the chief executive of the South Korean company, told the Financial Times. “We are the best alternative to China to meet the IRA conditions.”

The Inflation Reduction Act, US president Joe Biden’s flagship climate legislation, offers billions of dollars in subsidies to EV manufacturers and battery makers on condition that they source components from the US and its free trade partners.

South Korea is home to top-tier battery producers such as LG Energy Solution, Samsung SDI and SK On, but they rely heavily on Chinese companies for sourcing and refining critical materials for batteries. China produces about 90 per cent of the world’s rare earth elements.

“China is dominating the global nickel production capacity with strong refining technology,” said Park. “Decoupling from China will be difficult immediately, but we can gradually replace Chinese companies to a meaningful extent.”

Korea Zinc is building an advanced nickel refining plant for Won500bn ($370mn) in Ulsan, on the country’s east coast, with production due to start in 2026.

The plant will increase the company’s nickel production capacity from 22,000 to 65,000 tonnes a year, making it the world’s largest non-Chinese producer of nickel sulphate — a key ingredient or “precursor” for making cathodes in EV batteries. Korea Zinc has also formed joint ventures with South Korea’s LG Chem and Singapore-based Trafigura for precursor production and nickel refining, respectively.

“We’re investing a lot to keep expanding our capacity and studying where to build our overseas plants,” said Park.

Refining metals including iron still accounts for most of Korea Zinc’s revenues, but the company expects its battery materials business to generate sales from next year.

It has relied on Australia for raw materials, but plans to source more nickel from Indonesia, the world’s largest producer of the metal, for processing in South Korea to meet surging demand. Park admits China has the upper hand in nickel sourcing, with the majority of Indonesia’s nickel production and processing controlled by Chinese companies.

However, he is optimistic about securing cost competitiveness and “a level playing field” soon, helped by an export ban on raw nickel ore that makes China’s sourcing of Indonesian nickel more expensive. Likely US restrictions on foreign joint ventures with Chinese involvement in producing components for the US market will also be to the company’s advantage.

“China has enjoyed fat margins so far as it was able to source nickel in Indonesia at cheaper prices, but those days will not last long,” said Park.

“Washington is yet to spell out the definition of foreign entities of concern, but the industry will have to reduce the portion of Chinese capital [in their joint ventures] to tackle the US market.”

Indonesia lacks a free trade agreement with the US, but recent US guidelines have made it easier for nickel products sourced in Indonesia and processed in South Korea to be designated as IRA-compliant.

Analysts said Korea Zinc needed to invest more in Indonesia to secure production facilities and expand its global presence in the nickel supply chain, noting that all its plants were in its home market.

“As Indonesia is keen to see nickel get processed within the country, it is important for the company to secure stable supply of raw nickel ore and secure local refining facilities in Indonesia,” said Lee Jong-hyung, an analyst at Kiwoom Securities in Seoul.

Korea Zinc is also eyeing the US battery recycling market after taking over a US electronics waste recycling company last year and forming a partnership with Hyundai Motor last month to procure, process and recycle nickel.

“It is all about how much high-quality nickel and other valuable materials we can extract out of the used batteries at cheaper prices,” said Park, adding: “We have strong technology and knowhow.”