South Korea begins to reduce its dependence on China for key products such as batteries and permanent magnets

The South Korean government has announced a strategy to ensure that the proportion of 33 key minerals used in high-tech industries such as lithium and graphite imported from China will be reduced to 50% by 2030. Starting from 2023, South Korea will begin to reduce its dependence on China for some key projects such as batteries and permanent magnets.

Data from the Korea International Trade Association (KITA) on March 13 showed that South Korea’s lithium hydroxide imports in 2023 were US$6.19 billion, a year-on-year increase of 69%. Among them, the share of imports from China in 2023 will be 79.6%, a year-on-year decrease of 8.3 percentage points. In contrast, the share of Chile, South Korea's second largest source of lithium hydroxide, increased from 10.7% to 17.5%.

South Korea's dependence on Chinese lithium hydroxide increased from 74.1% in 2019 to 87.9% in 2022, in line with the growth of the South Korean battery industry, but fell for the first time in 2023.

Powdered lithium hydroxide is a key raw material for secondary battery cathode materials. South Korean companies such as LG Chem inject lithium hydroxide into a precursor mixed with nickel, cobalt and manganese to make cathode materials for electric vehicle batteries.

Lithium accounts for about 40% of the cost of cathode materials, making it a key mineral affecting battery prices.

The share of neodymium permanent magnets needed to make electric vehicle motors from China fell to 84.7% in 2023, down slightly from 87.5% in 2022. In contrast, the share of neodymium permanent magnets imported from the Philippines will increase from 11% in 2022 to 14.3% in 2023.

Neodymium is a rare earth metal that is highly magnetic, making it an important material for miniaturizing motors and improving efficiency. More than 80% of electric vehicles use neodymium-based rare earth permanent magnets in their motors. The drive motor of an electric vehicle typically weighs about 1.6 kilograms.

South Korea's reduced dependence on China for some key minerals such as lithium and permanent magnets has been interpreted as the result of South Korean companies actively responding to changes in the trade environment such as the U.S. Inflation Reduction Act (IRA) and actively substituting Chinese products under the South Korean government's policy of supporting supply chain diversification.