In response to the evolving geopolitical tensions between the United States and China, coupled with concerns over the Chinese Communist Party’s (CCP) propensity for leveraging resources strategically, South Korea is taking significant strides to minimize its reliance on Chinese imports of crucial minerals. The country has made notable advancements in securing alternative sources for lithium and rare earth elements, crucial for modern technologies.
Recently, POSCO International, a key player in South Korea’s venture into the electric vehicle (EV) battery material sector and part of the POSCO Group, declared a landmark achievement. The company has inked deals valued at 1.16 trillion Korean won (approximately $885 million) to supply neodymium-iron-boron (NdFeB) magnets, essential for EV motors, to leading automotive manufacturers in North America and Europe.
Specifically, a 900 billion Korean won (about $680 million) agreement with a major North American car maker and a 260 billion Korean won (around $200 million) contract with a renowned European automotive brand were signed by its American and German subsidiaries, respectively. These agreements span from the mid-2020s to the early 2030s, marking a significant shift towards diversifying supply chains away from China.
POSCO International has strategically sourced rare earth materials for NdFeB magnets from the United States, Australia, and Vietnam, bypassing the Chinese market, which dominates global production and processing. This move not only challenges China’s stronghold over the rare earth industry but also underscores South Korea’s commitment to establishing a more resilient and diversified supply network. The magnets will be produced by Star Group, South Korea’s sole manufacturer of rare earth permanent magnets.
Rare earth elements are indispensable in the manufacture of semiconductors, electric vehicle batteries, and other cutting-edge technologies. Despite China’s dominance, producing approximately 60 percent of the world’s rare earths and controlling nearly 90 percent of the global refining capacity, South Korea’s recent agreements signal a potential shift in the global supply chain dynamics.
A Strategic Shift
POSCO International’s recent success in securing substantial contracts for the supply of NdFeB magnets is part of a broader initiative by South Korean corporations to reduce their dependence on Chinese critical minerals. This endeavor is reflective of a concerted effort to diversify sources of essential raw materials, a crucial step for the country’s technological and industrial sectors.
A pivotal area of focus has been the lithium supply chain, a cornerstone for the burgeoning EV battery industry. POSCO has been at the forefront of these efforts, notably through the establishment of a lithium hydroxide production facility in South Jeolla Province.
Completed in the previous year, this plant boasts an annual output capacity of 21,500 tons and marks a significant milestone in achieving self-sufficiency in lithium hydroxide production—a material that previously saw complete reliance on imports and represents a substantial portion of electric vehicle battery cathode material costs.
The strategic procurement of raw lithium from Australia, facilitated by a free trade agreement with the United States, aligns with the requirements of the U.S. Inflation Reduction Act, enabling POSCO to benefit from EV subsidies. Moreover, POSCO’s expansion plans include the development of a lithium carbonate production facility in Argentina’s salt flats, further diversifying its supply base and strengthening its position in the global market.
LG Energy Solution, South Korea’s leading battery manufacturer, has also taken significant steps to secure its lithium supplies by entering into a supply agreement with WesCEF, an Australian lithium mining company. This deal, for the delivery of 85,000 tons of lithium concentrate, underscores the urgency with which South Korean companies are seeking to ensure stable and diversified sources for critical materials.
Trade data from the Korea Trade Association highlights a substantial increase in South Korea’s lithium hydroxide imports, rising by 69 percent in 2023 to reach $6.19 billion. Notably, the share of these imports originating from China decreased to 79.6 percent from 87.9 percent in the previous year, indicating a successful effort to reduce reliance on Chinese suppliers. Concurrently, imports from Chile, the second-largest source, increased, demonstrating a deliberate strategy to broaden the supply base.
The electric vehicle sector’s growth in South Korea has led to a heightened dependence on China for lithium hydroxide, a trend that has seen a reversal in 2023 for the first time. In addition, the diversification of NdFeB magnet imports is evident, with a slight decrease in imports from China and an increase from the Philippines, reflecting a broader strategy to mitigate supply-chain vulnerabilities.
Navigating Supply-Chain Vulnerabilities
Despite concerted efforts to diversify its critical mineral sources, South Korea’s reliance on China for graphite, a key component in electric vehicle battery anodes, remained high at approximately 90 percent last year. This dependency is particularly concerning given the recent strategic and regulatory shifts in global trade and resource management.In a significant policy update, the U.S. government announced measures under the Inflation Reduction Act (IRA) that directly impact international supply chains. Starting from 2025, EV manufacturers purchasing core minerals from entities identified as “Foreign Entities of Concern (FEOC)”—a label that includes Chinese companies—will no longer qualify for tax deductions.
This development is coupled with China’s decision to implement export controls on natural graphite since last December, exacerbating the urgency for South Korea to secure alternative sources for this critical mineral.
Addressing this challenge, POsCO FutureM, a subsidiary of the renowned Pohang Iron and Steel Group and South Korea’s sole producer of anode materials, has taken a proactive step. The company finalized an agreement with Syrah Resources, an Australian mining firm, to import up to 60,000 tons of natural graphite annually from Mozambique. This agreement marks a pivotal move towards mitigating the risks associated with single-source dependency, especially considering the previous total reliance on Chinese graphite.
The South Korean government’s response to these supply chain vulnerabilities is both strategic and comprehensive. In February, it unveiled the “Critical Mineral Security Strategy,” aimed at significantly reducing the country’s dependence on China for 33 critical minerals—essential for the advancement of high-tech industries—to 50 percent by 2030.
Projected Surge in Critical Mineral Demand by 2040
A comprehensive report released by the Korea Energy Economics Institute in March has laid out a forward-looking analysis on the expected surge in demand for core minerals within South Korea. This forecast, propelled by the anticipated expansion of the EV market and wind energy sector, underscores a pivotal challenge for the nation’s supply chain and strategic resource planning.According to the institute’s projections, the demand for key minerals critical to the manufacturing of cathode materials in South Korean EV batteries will witness a remarkable increase by 2040. Specifically, lithium demand is expected to rise by 15-fold, nickel by 12-fold, manganese by 19-fold, and cobalt by four-fold when compared to the figures of 2021. Furthermore, the requirements for minerals used in EV drive motors are anticipated to see a tenfold increase, highlighting the substantial growth within the EV sector.
The wind energy sector is not far behind in its increasing demand for essential minerals. The report predicts a 2.6-fold increase in the need for neodymium, a 3.1-fold rise for praseodymium, and an astonishing 21.6-fold surge for dysprosium by 2040, relative to 2022 figures. These minerals are crucial for the production of wind turbines, indicating a significant push towards renewable energy sources in South Korea’s future energy mix.
However, South Korea’s heavy reliance on China for these core minerals introduces a substantial supply risk, particularly in light of China’s dominant position in the global supply chain for these materials. This dependency is notably precarious for minerals essential not only to South Korea’s technological advancements but also to its energy transition goals.
Addressing this looming challenge, the Korea Economic Research Institute has advocated for a dual approach: diversifying import sources and enhancing resource recycling efforts. The institute underscores the importance of resource recycling as a strategic measure to mitigate reliance on primary raw materials, especially from China.
By recycling resources from spent EV batteries, South Korea can not only reduce its dependency on imported raw materials but also align with international regulatory frameworks like the U.S. Inflation Reduction Act and the European Union’s “Battery Directive.”
