The South Korean Critical Minerals Supply Chain

“The supply chain stuff is really tricky!” – this recent quote by Elon Musk sums up the complexities and difficulties of the supply chain. Nowhere is this more apparent than in relation to critical minerals, particularly when it comes to South Korea.

Several factors have prompted all stakeholders, especially governments, to reassess and scrutinise their current supply chains. The COVID-19 pandemic has heightened apprehensions regarding China’s stronghold in the critical minerals supply chain, notably in the lithium battery sector. Additionally, the ongoing conflict in Ukraine has led to a surge in the prices of essential raw materials – such as cobalt, lithium, and nickel – to unprecedented levels. China has also continued to impose export restrictions on important critical minerals as part of an ongoing struggle for dominance in the global tech war, with significant ramifications for global industrial supply chains.

In February of 2023, the South Korean Ministry of Trade, Industry, and Energy unveiled a strategy aimed at ensuring a consistent and secure source of critical minerals such as lithium, nickel, and rare earth materials. This initiative was in response to escalating geopolitical uncertainties and developing global supply chain issues caused by the shifting dynamics between the United States and China.

The ministry pinpointed 33 critical minerals, highlighting ten among them as strategically vital for semiconductor and electric vehicle (EV) battery production – key sectors in which South Korea holds significant prominence. The 10 minerals are lithium, nickel, cobalt, manganese, graphite (all critical key materials for lithium-ion batteries), and five kinds of rare earth mineral.

South Korea meets around 95% of its mineral demand through imports and China is by far and away the country on which South Korea is most dependent in this regard. As of last year, 25 out of 33 imported strategic minerals had China as one of their three main sources.
As reported by the Korea International Trade Association (KITA), South Korea’s dependence on China for graphite imports stands at 97.7% for natural graphite and 94.3% for synthetic graphite as of September 2023. Essentially, South Korea’s entire graphite supply is sourced from China. Additionally, South Korea relies on China for substantial proportions of other crucial minerals, including 84% of its lithium oxide, 83.3% of cobalt oxide, 77.6% of manganese and cobalt sulfate, and 69% of cobalt hydroxide imports.

It appears that the wisdom of “not putting all your eggs into one basket” has been disregarded in South Korea over the past decade, resulting in a challenging situation.

The South Korean government is actively collaborating with domestic battery manufacturers, including LG Energy Solution, SK On, Samsung SDI, and several other key players in the battery materials industry such as POSCO, SK Chem, EcoPro BM, Lotte Chemical, and LG Chem. Their aim is to ensure a steady and reliable supply of graphite. To achieve this, a “Graphite Supply Task Force” has been established in conjunction with agencies such as the Korea Trade-Investment Promotion Agency (KOTRA) to guarantee companies a consistent graphite supply.

Moreover, the government intends to expedite plans, originally slated for next year, to produce synthetic graphite within local facilities. This move aims to bolster domestic sourcing of graphite. Additionally, plans are in place to enhance preparedness by securing supplies from alternative graphite-rich countries such as Tanzania and Mozambique. The strategy involves diversifying import sources, developing substitute materials like silicon anode materials, and augmenting domestic graphite production.

To enhance preparedness for potential supply crises, the government plans to increase the stockpile of crucial materials from the existing 54 days to 100 days. Additionally, a “swift release scheme” will be implemented, facilitating rapid support to companies requiring key materials within a span of just eight days. This initiative aims to swiftly address and assist companies facing an urgent needs for essential materials, ensuring a more agile and responsive system during critical supply situations.

Furthermore, there is a strong emphasis on fostering collaborative efforts among countries under the US-led Indo-Pacific Economic Framework (IPEF) to address export control measures through supply chain agreements. This joint approach is seen as a key step in managing potential disruptions in the graphite supply chain. The government has also said it will increase the state-owned inventory of lithium and other critical minerals as insurance against a supply crunch. A new KRW240 billion facility will be built in the Saemangeum industry complex by 2026 to increase storage capacity. Additionally, South Korea has signed the Minerals Security Partnership (MSP) framework to help domestic firms make deals with foreign nations for key mineral development projects.

On 13 December 2023, following the Emergency Economic Ministerial Meeting, the South Korean government unveiled plans to enhance the industrial competitiveness of South Korea’s secondary batteries throughout their lifecycle. Commencing in 2024, tax credits will be provided for investments in overseas resources development, particularly in obtaining mining rights. Furthermore, technologies crucial for refining minerals such as nickel, lithium, and other critical elements will be evaluated for potential designation as “new growth and proprietary technologies” under the Act on Restriction on Special Cases Concerning Taxation.

Over the next five years (2024–28), more than KRW38 trillion will be injected into various facets of the secondary battery industry. This comprehensive funding will encompass minerals, materials, and finished products, aiming to bolster the entirety of the secondary battery sector.

Critical mineral supply chains are complex, and reorientation in specific areas will require significant investments of time, expertise, and resources, but it is possible in many domains. South Korea will need to take a fresh look at its supply chains. Regions and areas that have not traditionally been trading partners will need to be considered, and mutually beneficial collaborations and partnership worldwide will need to be cemented through effective and meaningful long-term relationships which are built on shared values and trust. South Korea needs to play the long game. This can be best summed up in the quote, “The day you plant the seed is not the day you eat the fruit.”