SK On to buy battery material lithium hydroxide from Chile's SQM

SK On Co., the world’s fifth-largest electric battery maker, said on Sunday it signed a deal on Nov. 4 to purchase lithium hydroxide, a key battery material, from Chilean chemical company SQM for five years starting in 2023.

The material is used mainly to produce lubricating grease that can withstand extreme temperatures. The 57,000 tons of the ingredient will be used in producing 1.2 million electric vehicles (EVs), sharpening the South Korean battery maker’s competitive edge in North America.

Under the agreement, the two companies will also discuss additional supply of lithium hydroxide, investment in manufacturing facilities and recycling of waste batteries over the mid- to long-term.

Founded in 1968, SQM is a one of the world's largest lithium producers and is listed on the New York Stock Exchange (NYSE) and the Santiago Stock Exchange.

The chemical purchase deal will help SK On meet the requirements of the US Inflation Reduction Act (IRA), which gives tax credits for EVs made in North America using minerals mined or components made in the region.

For EVs to qualify, at least 40% of its batteries' minerals and 50% of its battery components must be supplied from or processed in the US or its free trade partner countries, which include Chile. The proportions will rise to 80% for minerals by 2027 and 100% for parts by 2029. 

SK On is bolstering its key battery material supply chains globally.

In October, it signed a contract to procure lithium from Australian mining firm Lake Resources NL for 10 years starting in the fourth quarter of 2024, as well as acquire a 10% stake in the Australian company via a third-party rights offering by end-June 2023. 

In 2019, the Korean battery maker’s parent and Korea's top refiner SK Innovation Co. signed a deal to buy 30,000 tons of cobalt from Swiss mining company Glencore Plc. from 2020 to 2025.

Write to Ik-Hwan Kim at lovepen@hankyung.com
Jihyun Kim edited this article.