LG Chem Joins Forces with Huayou Cobalt to Secure Battery Materials

South Korean battery maker LG Chem (KRX:051910) has agreed to set up two joint ventures with China’s Zhejiang Huayou Cobalt (SHA:603799) to secure supply of materials needed in electric car batteries.

Under the deal, LG Chem will raise a total of US$224.8 million to build precursor and cathode plants in China. The company is aiming for production to start in 2020 and says output will reach 40,000 tonnes a year.

According to the Wednesday (April 11) announcement, the two joint venture companies, Huajin New Energy Material (Quzhou) and Leyou New Energy Material (Wuxi), will be equipped to produce both nickel cobalt manganese (NCM) and nickel cobalt aluminum (NCA) technologies.

The deal comes a time when carmakers, battery producers and technology companies are racing to secure supply of key electric car battery materials such as cobalt.

“[This deal] for precursor and cathode production in China is very significant. [It’s] the first major joint venture between a cell manufacturer and a raw material producer,” Benchmark Mineral Intelligence analyst Caspar Rawles said after the announcement.

He added, “[this is a] whole cradle to grave solution, controls [the entire] value chain and ensures clean cobalt.”

To put the size of the deal into perspective, the London-based firm estimates that in 2017 Umicore (BSE:UMI) was the world’s largest cathode maker, producing 24,000 tonnes of material.

The precursor and cathode plants to be built under this agreement will produce almost two times that amount. In addition, they are being installed with a capacity expansion to 100,000 tonnes per year each.

This deal also continues to highlight China’s leadership in the space. Last year, the Asian country produced over 80 percent of the world’s cobalt chemicals, which are used in lithium-ion batteries, according to Benchmark Mineral Intelligence.

“Announcements like the LGC/Huayou JV show that Chinese processing dominance is ever increasing,” Rawles said. In March, Chinese battery recycler GEM (SZSE:002340) signed a cobalt supply deal with top producer Glencore (LSE:GLEN).

On Wednesday, shares of LG Chem closed down 0.27 percent at KRW 367,000. Meanwhile, shares of Zhejiang Huayou Cobalt were also down 0.9 percent to close at CNY 119.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.