Battery recycling companies in South Korea plot overseas expansion

Some leading South Korean battery recycling companies have made strong stock market debuts as they target overseas expansion during a global scramble for EV metals.

Shares of SungEel HiTEch and rival Sebit Chem have more than tripled since their listings in late July and early August, respectively. WCP, the country’s second-largest battery separator maker, is scheduled to go public at the end of this month with a Won432bn ($306mn) listing.

Recycling companies in South Korea, home to three of the world’s 10 biggest battery makers — LG Energy Solution, Samsung SDI and SK On — have easy access to the scrap from battery cell manufacturing and customers to buy the recycled material.

The companies are capitalising on a push from battery players around the world to reduce their reliance on China and other challenging countries such as Democratic Republic of Congo and Indonesia for key materials.

“Battery recycling is becoming more important in terms of energy security as battery makers are keen to reduce their dependence on China in securing key materials,” said Yoon Chang-bae, an analyst at KB Securities.

Recycling companies have emerged as a rare bright spot for investors in South Korea’s sagging stock market, as automakers accelerate their transition towards greener cars.

“Investors are betting on the growth potential of these ‘city mines’ as metal prices are surging again amid strong EV sales in China,” said Yoon Hyuk-jin, an analyst at SK Securities.

The offerings of SungEel and Sebit were oversubscribed, with their subscription rates beating that of LG Energy Solution, the world’s second-largest EV battery maker, which raised Won12.8tn ($9.8bn) in the country’s largest IPO in January.

Founded in 2000, SungEel grew its recycling expertise on a deluge of used portable electronics to become one of the world’s most advanced collectors and processors of old and defective lithium-ion batteries, which it now sources from the country’s leading automakers and battery makers.

The company plans to triple capacity by 2024 using its IPO proceeds. It already has nine recycling plants around the world — three in South Korea and the rest in China, India, Malaysia and eastern Europe.

“Demand for battery recycling is growing fast as [environmental, social and governance] becomes more important,” said a SungEel executive. “We need to build a new plant this year to meet surging demand.”

Battery recycling can ease potential supply shortages and cut prices of critical metals such as nickel, cobalt, copper and lithium by reintroducing them into the battery supply chain, reducing dependence on raw materials from mines. Scrap for recycling can come from cell production and end-of-life batteries.

SNE Research forecasts the global EV battery recycling market, which was estimated at just Won400bn ($300mn) in 2020, to grow to Won21tn in 2030.

That expected growth is underpinned by the EU and US introducing powerful legislative tools to bolster recycling to secure supplies of strategic minerals, as domestic mining projects stumble over permitting.

Korean battery makers are positioning themselves to benefit from incentives contained in US president Joe Biden’s flagship economic package, known as the Inflation Reduction Act, for local carmakers to decouple from Chinese supply chains.

Under the act, automakers receive tax credits on EVs if a certain threshold of materials is sourced from the US, free trade partners or recycling. EVs with minerals and components from foreign entities of concern will be no longer be eligible for those credits from 2025.

In July, SK On launched a $7.8bn joint venture with Ford to build three battery plants in the US. In May, Hyundai announced a $5.5bn investment to build its first dedicated EV plant and battery manufacturing facility in the US state of Georgia, while LG Energy Solution and GM announced a $2.6bn investment earlier this year to build a third plant as part of their joint venture in Michigan.

Analysts expect Korean battery recycling companies to gradually expand their overseas presence to be closer to the battery makers building plants in the west.

“Interest in recycling companies has surged as investors are concerned about battery metal sourcing since the IRA passage,” Yoon of SK Securities said.

Korean recycling companies are competing with nascent western rivals such as Glencore-backed Li-Cycle, Redwood Materials, which was set up by former Tesla chief technical officer JB Straubel, and Australia’s Neometals as they expand their overseas presence.

Hans Eric Melin, managing director of Circular Energy Storage, a consultancy, said the Koreans’ success lied in their close relationships with the battery cell makers and their aggressive sourcing activities for waste to recycle.

SeungEel and Sebit are undervalued compared to western battery recycling upstarts, said Melin.

Glencore-backed Li-Cycle has a market capitalisation above $1bn but made a $23mn ebitda loss in the third quarter as it scales up, compared with SungEel’s market cap of $1.2bn on 2021 operating profits of Won16.9bn.

“We have totally missed that a lot of material for a long time has mainly been processed in other countries, mainly Korea and China,” he said. “All of the Americans and Europeans are far behind as SeungEel has processed batteries for recycling for over 10 years.”