LG Chem, Huayou to build LFP cathode plant in Morocco

South Korea’s LG Chem Ltd. said on Sunday it will build a lithium phosphate iron (LFP) cathode materials plant in Morocco in partnership with China’s Huayou Group unit Youshan. The materials will be subsidized by the US Inflation Reduction Act (IRA) as the North African country is a free trade partner of the US, LG Chem added.

The plant is aimed at mass production from 2026 with an annual capacity of 50,000 metric tons. That is enough to be installed in 500,000 entry-class EVs, which come with a 50-kilowatt-per-hour capacity and a 350-kilometer range, LG Chem stated.

The materials from Morocco, which sits on the world’s largest reserve of phosphate rocks, will be supplied to North America. The cathodes will be used for LFP batteries of LG Energy Solution Ltd.'s Arizona-based plant that will begin operations in 2026, industry sources said.

The two affiliates of LG Group are aiming to rapidly increase their share in the global LFP battery market, currently dominated by China. LFP batteries are gaining popularity as they are cheaper than nickel-cobalt-manganese (NCM) batteries and have a low fire hazard, thus often used for affordable EVs.

TURNING FROM NCM TO LFP BATTERIES 

LG Chem will become the first Korean cathode maker to build an LFP battery materials plant.

Major EV battery makers in Korea, such as Samsung SDI Co., POSCO Future M Co., EcoPro Co. and L&F Co. are striving to produce LFT cathodes and battery cells to maintain price competitiveness over Chinese products.

The local battery producers hadn’t invested in LFP cathodes as they thought concentrating on NCM batteries would be more profitable, while Chinese firms like Contemporary Amperex Technology Co. (CATL) and BYD Co. are advanced in LFP battery technologies.  

But the Korean firms decided to enter the LFP battery business as global auto giants, including Tesla Inc., Mercedes-Benz and Hyundai Motor Co. are increasingly adopting the cheaper battery cells for their low-end, entry-level EVs.

LG Chem expects that the made-in-Morocco cathodes will qualify for tax credits under the IRA as the North African country is a free trade partner of the US.

Under the law that went into effect in August 2022, at least 40% of the critical minerals contained in EV batteries must be extracted or processed in the US or free trade partners by 2023. The percentage will increase to 80% in 2027.

LG Chem and Youshan would need to adjust their equity in compliance with the regulations of the IRA's Foreign Entity of Concern (FEOC), a provision aimed at China, the Korean firm stated.

BATTERY AS A GROWTH DRIVER

In addition to the LFP cathode plant, LG Chem and Huayou Cobalt will construct a lithium conversion plant in Morocco, set to extract lithium hydroxides and lithium carbonates essential for cathode production. The lithium conversion plant is scheduled to manufacture 52,000 tons of lithium in 2025 and supply it to the LFP plant.

The two companies also agreed to cooperate in Indonesia, which has the world’s largest nickel reserves. They will join forces for the vertical integration of the cathode materials supply chain, ranging from raw materials to precursors and cathode materials, in order to meet the US’ IRA standards, LG Chem said.

Furthermore, they are considering building a precursor plant in Indonesia with an annual production capacity of 50,000 tons, the Korean firm added.

LG Chem is increasing investment in batteries while cutting back on petrochemicals as the Korean firm has decided that it can’t beat Chinese companies in terms of price competitiveness for a wide range of petrochemical products.

The company is seeking to sell off some of its petrochemicals-related assets to fund cathode production, one of its new growth drivers.

In July, the firm started a process to sell off its core naphtha cracking center (NCC) in Korea, estimated at about 3 trillion won ($2.2 billion). In August, the company decided to look for potential buyers for its domestic film factories.

Write to Mi-Sun Kang at misunny@hankyung.com

Jihyun Kim edited this article.