POSCO Chem, Samsung SDI ink $33 bn EV battery material deal

POSCO Chemical Co., a battery material unit of South Korea’s steel giant POSCO Holdings Inc., and Samsung SDI Co., the world’s No. 6 electric vehicle battery maker, signed a 10-year cell ingredient supply deal worth 40 trillion won ($32.6 billion), the largest-ever in the industry to date.

POSCO Chemical said on Monday it agreed to supply nickel-cobalt-aluminum (NCA) cathode material to Samsung SDI by 2032. It was POSCO Chemical’s first cathode material contract with Samsung SDI, a unit of the country’s top conglomerate Samsung Group. POSCO Chemical has been supplying most of the materials to LG Energy Solution Ltd., the world’s third-largest EV battery producer.

“Our efforts paid off to expand our customer base and portfolio, as well as enhance business competitiveness in response to the rapidly growing EV market,” said POSCO Chemical President Kim Joon-hyeong.

After the announcement, POSCO Chemical shares ended up 3.1% to 218,000 won on the South Korean stock market, far outperforming a 1.4% loss on the main Kospi.

Cathode materials, the costs of which make up more than 40% of total battery production expenses, are key for the capacity and output of cells. Local cathode makers manufacture the NCA, nickel-cobalt-manganese (NCM) and nickel-cobalt-manganese-aluminum (NCMA) types. NCM and NCMA cathode materials have longer lifespans, while the NCA type has higher output.

Samsung SDI started using the NCA type from its latest battery Gen 5, switching its cathode materials from the NCM type.

POSCO Chemical, which has been focusing on the NCM and NCMA types, has expanded its product portfolio with the Samsung SDI deal. The battery maker reportedly plans to supply batteries produced with POSCO Chemical’s materials to global automakers such as Dutch-domiciled multinational company Stellantis N.V.

“The cooperation with POSCO Chemical allowed us to secure a strong trust relationship and lay the foundation for long-term growth together,” said Samsung SDI President and CEO Choi Yoonho.

TO BENEFIT FROM US TAX BREAKS

The deal came as global EV makers and battery producers are scrambling for stable procurement of cell materials as the US took measures to bolster its own EV-related industries and keep China’s growth in these sectors in check.

According to the Inflation Reduction Act (IRA), Washington provides tax breaks of up to $7,500 per vehicle only to EVs equipped with batteries that contain 40% or more of materials procured in the US or its free trading partners. The proportion is set to rise to 70% by 2027 as the government increases the requirement by 10 percentage points every year.

In addition, battery makers need to use 50% or more of parts made in North America for the incentives and the requirement will rise to 100% by 2029. POSCO Chemical and a major US automaker General Motors Co. in August last year broke ground for a cathode factory in Canada with a schedule to complete the facility in 2024.

Those measures aim to develop the supply chain of battery materials and components in the US and reduce China’s influence in the global EV industries.

China dominates the global battery material supply chains, making up 95% of the world’s manganese refining, 69% of nickel sulfate, 75% of cobalt refining and 44% of lithium chemical in 2022, according to estimates by a market research firm Benchmark Mineral Intelligence.

Given such dominance, POSCO Chemical is likely to attract more global EV and battery makers as the company has a value chain across the minerals and materials for secondary batteries. POSCO Chemical procures minerals such as nickel and lithium from mines, in which its holding company invested.

The battery material maker plans to refine and process minerals at its own plants at home and abroad, reducing its dependence on Chinese partners.

“The contract with Samsung SDI is a result of POSCO Chemical’s aim to expand customers and Samsung’s plan to cut reliance on China and secure a stable supply of battery materials,” said an industry source in Seoul.

POSCO Chemical is expected to supply more materials to LG Energy. POSCO Group has been cooperating in the battery material sector since it started supplying ingredients to LG Chem Ltd., LG Energy’s parent company, in 2012.

PARTNERSHIP SHAKEUP

The POSCO Chemical-Samsung SDI deal is a sign of a shakeup in the battery industry as Samsung SDI has been buying cathode materials from EcoPro BM Co., South Korea’s top producer of the battery ingredients, industry sources said.

“The deal is evidence of ‘no eternal allies, no perpetual enemies’ in a business,” said another industry source. “Existing alliances between battery materials suppliers and customers could be weakened.”

Samsung SDI is EcoPro BM’s key customer as LG Energy cut off deals with the material maker, which tried to supply products to the smaller battery rival in 2012. Lee Dong-che, the founder and chairman of EcoPro, the holding company of EcoPro BM, regarded Samsung SDI as an eternal partner.

The battery manufacturer is still set to proceed with a cathode material plant construction in the US with Stellantis and EcoPro BM. In addition, Samsung SDI may seek more supplies from EcoPro BM, given strong growth in the global EV market, sources said.

Write to Kyung-Min Kang and Hyung-Kyu Kim at kkm1026@hankyung.com
Jongwoo Cheon edited this article.