Battery recycling companies in South Korea prepare for overseas expansion

Some big South Korean battery recycling companies have made strong stock market debuts as they aim to expand overseas amid a global run on electric vehicle metals.

Shares of SungEel HiTEch and rival Sebit Chem have more than tripled since listing in late July and early August, respectively. WCP, the country’s second-largest battery separator maker, is expected to go public at the end of this month with a listing of 432 billion won ($306 million).

Recycling companies in South Korea, home to three of the world’s top 10 battery manufacturers – LG Energy Solution, Samsung SDI and SK On – have easy access to waste from battery cell manufacturing and customers from buy the recycled material.

The companies are capitalizing on the efforts of battery players around the world to reduce their dependence on China and other difficult countries such as the Democratic Republic of Congo and Indonesia for key materials.

“Battery recycling is becoming increasingly important in terms of energy security as battery manufacturers want to reduce their reliance on China for securing key materials,” said Yoon Chang-bae, an analyst at KB Securities.

Recycling firms have become a rare bright spot for investors in South Korea’s falling stock market as automakers accelerate their transition to greener cars.

“Investors are betting on the growth potential of these ‘urban mines’ as metal prices rise again amid strong electric vehicle sales in China,” said SK Securities analyst Yoon Hyuk-jin.

Bids from SungEel and Sebit were oversubscribed, with their subscription rates topping those of LG Energy Solution, the world’s second-largest electric vehicle battery maker, which raised 12.8 billion won ($9.8 billion) during of the country’s largest IPO in January.

Founded in 2000, SungEel has developed its recycling expertise on a deluge of used portable electronic devices to become one of the world’s most advanced collectors and processors of old and defective lithium-ion batteries, which it now sources from the nation’s leading automakers and battery manufacturers.

The company plans to triple its capacity by 2024 using proceeds from its IPO. It already has nine recycling plants around the world – three in South Korea and the others in China, India, Malaysia and Eastern Europe.

“The demand for battery recycling is increasing rapidly as [environmental, social and governance] becomes more important,” said a SungEel executive. “We need to build a new factory this year to meet the growing demand.”

Recycling batteries can alleviate potential supply shortages and reduce the prices of critical metals such as nickel, cobalt, copper and lithium by reintroducing them into the battery supply chain, reducing reliance on materials raw materials from the mines. Waste for recycling may come from the production of end-of-life cells and batteries.

SNE Research predicts that the global electric vehicle battery recycling market, which was estimated at just 400 billion won ($300 million) in 2020, is expected to reach 21 billion won in 2030.

This expected growth is supported by the introduction by the EU and the United States of powerful legislative tools to strengthen recycling to guarantee the supply of strategic minerals, as national mining projects stumble over permits.

Korean battery makers are positioning themselves to take advantage of incentives contained in US President Joe Biden’s flagship economic package, known as the Curbing Inflation Act, for local automakers to decouple from supply chains Chinese.

Under the law, automakers receive electric vehicle tax credits if a certain threshold of materials comes from the United States, free trade partners, or recycling. Electric vehicles containing minerals and components from foreign entities of concern will no longer be eligible for these credits from 2025.

In July, SK On launched a $7.8 billion joint venture with Ford to build three battery factories in the United States. In May, Hyundai announced a $5.5 billion investment to build its first dedicated electric vehicle plant and a battery manufacturing plant in the US state of Georgia, while LG Energy Solution and GM announced an investment of $2.6 billion earlier this year to build a third factory as part of their joint venture in Michigan.

Analysts expect Korean battery recyclers to gradually expand their overseas presence to get closer to battery makers building factories in the west.

“Interest in recycling companies has increased as investors worry about battery metal supplies since the IRA passed,” said SK Securities’ Yoon.

Korean recycling companies are competing with nascent Western rivals such as Glencore-backed Li-Cycle, Redwood Materials, which was set up by former Tesla technical director JB Straubel, and Australia’s Neometals as they expand their presence abroad.

Hans Eric Melin, managing director of Circular Energy Storage, a consultancy, said the Koreans’ success lies in their close relationships with battery cell makers and their aggressive sourcing activities for waste to be recycled.

SeungEel and Sebit are undervalued compared to newcomers to Western battery recycling, Melin said.

Glencore-backed Li-Cycle has a market cap of over $1 billion, but posted an Ebitda loss of $23 million in the third quarter as it expands, compared to the market cap of SungEel of $1.2 billion on operating profit of 16.9 billion won in 2021.

“We totally missed the fact that a lot of material has long been mostly processed in other countries, mostly Korea and China,” he said. “All Americans and Europeans are far behind because SeungEel has been processing batteries for recycling for over 10 years.”