SK On to source lithium from Chile
South Korean battery cell manufacturer SK On has signed a lithium supply contract with Chilean supplier SQM. SK On will buy up to 57,000 tonnes of lithium hydroxide from SQM over a five-year period starting in 2023.
This quantity is enough to produce batteries for about 1.2 million electric vehicles, according to SK On. This is already a binding order, not just a letter of intent – which is also common in the industry.
SK On does not specify in the announcement in which plant the lithium hydroxide from SQM is to be processed into battery cells. But it is highly likely that at least part of the 57,000 tonnes will end up at the battery plant in the US state of Georgia. This is because, according to SK On, the supply agreement with SQM is a step “that will further strengthen the company’s supply chain for critical battery materials in addressing the US Inflation Reduction Act”. Elsewhere in the memo, the Koreans emphasise that Chile has a free trade agreement with the US.
In other words, materials mined in Chile would also count in the SK-On interpretation as part of the value added that will be needed in the future for an electric car to qualify for the EV tax credit in the US. Under the Inflation Reduction Act, the tax credit will now only be available if, among other things, a certain percentage of critical battery materials are extracted or processed in the US or in countries that have a free trade agreement with the US.
In addition to the supply agreement, SK On and SQM have agreed to discuss a medium to long-term partnership to “enhance their cooperative relationship”. According to the SK On statement, this not only involves potential additional lithium supplies, but also possible investments in production facilities or recycling of used batteries.
As SQM 2020 has joined the Initiative for Responsible Mining Assurance (IRMA) to ensure ethical and environmentally friendly lithium mining, SK On expects the cooperation to further improve its own competitiveness in ESG (environmental, social, governance) issues. In addition, the Korean company emphasises that SQM is “currently one of the lithium producing companies with the lowest CO2 and water footprint in the world”.
“The deal with SQM is a part of our business strategy to support global production expansion and proactively respond to changes in the external environment,” says Jin Kyo-won, COO at SK On. Carlos Díaz, executive vice president of lithium at SQM, adds, “SK On’s supply chain for critical minerals has been further strengthened in cooperation with SQM, which has proven excellent quality and reliability.”
In October, SK On placed a significantly larger lithium order with Australian company Lake Resources: In total, the Korean battery manufacturer can purchase 230,000 tonnes of lithium from Lake Resources – enough to produce batteries for about 4.9 million electric cars.
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