Apr. 11 (NBD) -- Zhejiang Huayou Cobalt Co., Ltd. (Huayou Cobalt) announced in a company filing Wednesday that it will set up two joint ventures with South Korea's LG Chem.

The plan comes as South Korean companies step up efforts to secure battery metals including cobalt to meet rising demand for electric vehicles. Huayou Cobalt wants to take advantage of LG Chem's technology to enrich its product portfolio.

Two JVs under planning

The cooperation is targeting the market of batteries for electric vehicles, computers, communication, and consumer electronics products. 

Under the deal, Huayou New Energy, a fully-owned subsidiary of Huayou Cobalt, and LG Chem will jointly invest over 4 billion yuan (636.6 million U.S. dollars) to set up precursor and cathode joint ventures in China.

Huayou Cobalt will have a 51 percent stake in the precursor entity while LG Chem will hold the controlling right in the cathode entity.

The JV are expected to start producing 40,000 tons of precursors and cathodes a year respectively from 2020. And the long-term capacity of both plants will reach 100,000 tons a year.

Following the partnership, Huayou Cobalt will be able to supply metal materials, such as cobalt and nickel, to the precursor company, while the precursors company will offer materials to the cathode entity.

A working staff at the securities department of Huayou Cobalt told NBD that the deal is in line with the development strategy of the company.

Limited results from early arrangements

Cobalt price has doubled since the beginning of last year. Driven by the surging demand, Huayou Cobalt gained enormously from the rising wave last year.

According to its performance forecast, the company is expected to earn net profit attributable to shareholders of 1.65 billion yuan (262.6 million U.S. dollars) to 1.9 billion yuan (302.4 million U.S. dollars) in 2017, a year-on-year increase of 2,283.1 percent to 2,644.18 percent.

Rising cobalt price helps push up the price of precursors directly. Take battery maker CATL for example, among the four kinds of basic battery materials (precursors, cathode, anode, and electrolyte), precursors affected the company's cost most last year.

It's not surprising that cobalt material companies are stepping up efforts in downstream services. For example, Hanrui Cobalt, another cobalt giant, announced in late March that the company is expected to set up a cobalt material and precursors unit with 1.91 billion yuan (304.0 million U.S. dollars).

However, early efforts that Huayou Cobalt made in the precursors sector have showed limited results. Huayou New Energy, the precursors production and sales unit of Huayou Cobalt, pocketed operating revenue of 114 million yuan (18.1 million U.S. dollars) last year, but with net loss of 3.202 million yuan (509,596.7 U.S. dollars).

 

Email: tanyuhan@nbd.com.cn