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South Korean steel titan Posco charges into EV batteries

Investments for top-to-bottom supply chain highlight risky push to diversify

Posco is one of the world's largest steelmakers, but due to competition from Chinese rivals and growing calls for it to fight global warming, the South Korean company is looking diversify.   © Reuters

SEOUL -- Global steel powerhouse Posco aims to crack the growing field of lithium-ion batteries, as the South Korean company strives to expand beyond its traditional business into areas with a bright future such as electric vehicles.

Posco hopes to become less reliant on its mainstay steel business, which faces competition from rising Chinese rivals and pressure to make costly investments toward reducing greenhouse gas emissions. But history is littered with failed attempts by steelmakers to enter new operations, and Posco faces an uphill battle.

Chairman and co-CEO Choi Jeong-woo positions battery materials as a major avenue for future growth. Posco has gained footholds at each step of the process, from mining lithium for cathodes and graphite for anodes to producing ready-to-use materials for South Korea's big battery makers.

"We're building the world's only integrated supply chain" for battery terminals "and putting the entire company behind it," said Choi, who took the reins in 2018.

At the top of the battery supply chain, Posco in 2018 acquired rights to mine lithium at a salt lake in Argentina. Lithium is concentrated in just a few regions, including Australia and South America, and Argentina in particular is estimated to hold enough reserves to make batteries for 370 million electric vehicles.

On the anode side, Posco reached a deal in January for a 15% stake in Australia's Black Rock Mining, giving the South Korean company rights to output from a graphite project in Tanzania.

Having secured a stable supply of raw materials, Posco plans to invest aggressively downstream in processes such as extraction.

The company committed this month to building a lithium extraction plant in the South Korean city of Gwangyang. The facility, slated to come online in 2023, will have an annual capacity of 43,000 tons, enough for 1 million EV batteries. Posco says its proprietary extraction technology can improve battery output, boosting driving range.

Posco also has been investing hundreds of millions of dollars yearly to expand its cathode materials factory in Gwangyang and expects to break ground this year on a lithium extraction facility near the Argentine salt lake. Plans are underway to expand a domestic anode materials plant in Sejong. The company looks to leverage procurement and production management know-how from its steel business.

 A brine pool is used to extract lithium at a salt flat near Susques, Argentina   © Reuters

The heavy investment aims to keep pace with three big customers on Posco's doorstep: LG Chem, Samsung SDI and SK Innovation. These compatriot companies rank second, fourth and sixth, respectively, in global production of automotive batteries, and they are pouring money into plants around the world.

Since Posco's formation in 1968 as part of South Korea's industrial modernization drive, its policy has been to support the development of domestic companies. By enabling local production of crucial materials, the steelmaker helped the country's auto and home electronics industries flourish.

With South Korea looking to cultivate automobile batteries as another major industry in the vein of semiconductors, Posco is set to play a supporting role once again.

The steelmaker's earnings rebounded sharply last quarter from the earlier coronavirus-induced lull in production, topping pre-pandemic levels. Revenue grew 10% to 16.07 trillion won ($14.4 billion), while operating profit more than doubled to 1.55 trillion won. Being a relative latecomer to the business, Posco has newer production facilities that are highly efficient and highly profitable.

But the outlook is cloudy as Chinese steelmakers grow and the industry faces pressure to combat climate change. South Korea has pledged to reach net-zero carbon emissions by 2050. Posco operates two large mills at home, and the global push to reduce emissions is sure to raise costs.

Choi, who possesses a background in finance and experience in business planning, called for a transformation of the company even before he took charge. Beyond restructuring steel operations, such as closing a blast furnace that dates to 1973, he has pushed for Posco to enter new businesses.

By 2020, steel dropped to just 49% of Posco's business, and the company aims to cut that portion to 40% by 2030. Posco intends to make "new growth businesses" -- primarily battery electrode materials -- account for 20% of operations, up from the current 2%.

The company has entered new businesses before, but not always with success. Industrial machinery and specialty steels are examples. Other steelmakers also have tried to diversify and failed. Japan's Nippon Steel put efforts into nurturing semiconductors and personal computers, only to give up on those businesses and return to steel.


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