SMM analysis on China January-April ternary cathode material exports and insights on overseas battery demand from leading battery makers’ financial reports

I．Overview of April Export Data:

In April 2024, South Korea's total export volume of ternary cathode materials (NCM+NCA) was 19,000 mt, down 25% YoY. From January to April 2024, South Korea's cumulative total export volume of ternary cathode materials (NCM+NCA) was 75,700 mt, down 23% YoY. Among them, South Korea's April export of NCM ternary cathode materials was 15,813 mt, down 4% MoM and 23% YoY, while NCA exports were 3,309 mt, down 26% MoM and 31% YoY.

The main cathode material plants in South Korea are LGC, SDI, L&F, ECOPRO, and POSCO. Currently, South Korea's cathode material capacity accounts for about 25% of the global cathode material capacity. In the global market, South Korea's domestic ternary cathode material capacity is second only to China. However, South Korea's domestic battery cell capacity is relatively small, with LG new energy capacity distributed in the US, Indonesia, China, and Europe (Poland); SDI's capacity distributed in the US, China, Hungary, and Malaysia; and SKI's capacity distributed in the US, China, and Hungary.

Therefore, observing South Korea's ternary cathode material export volume can provide insights into the production of South Korean cathode material plants (with limited domestic battery cell capacity, exports can reflect production trends) and the production situation of overseas battery cell manufacturers and overseas market demand.

From the country-specific export data of NCM, the cumulative export volume of NCM from January to April 2024 was 56,800 mt, compared to 81,400 mt in the same period last year, down 30% YoY, indicating weak overseas demand.

The country-specific data shows that China is the largest export destination for South Korea's ternary cathode material, accounting for 31% in April. However, compared to 2023, China's share is continuously declining, and bypassing Chinese capacity to obtain subsidies remains a major trend. The US was the second-largest export destination in April, accounting for 21%, and Hungary was the third-largest, accounting for 20%.

In April 2024, NCA exports were 3,309 mt, down 26% MoM and 31% YoY. From January to April 2024, the cumulative export volume of NCA was 19,000 mt, while the cumulative export volume from January to April 2023 was 17,300 mt. The export data from January to April 2024 increased by 9% YoY. However, the export data in 2024 has been declining month by month, which is in stark contrast to the trend in 2023.

II. Overseas Battery Cell Manufacturers' Q1 Report

Samsung SDI reported financial results for the first quarter that ended March 31, 2024.

The company announced that it posted KRW 5.13 trillion in revenue in the first quarter of 2024, down 4 percent from a year earlier, and KRW 267.4 billion in operating profit, a 29-percent decrease during the same period.

The revenue and operating profit fell 8 percent and 14 percent, respectively, from the previous quarter.

First Quarter Earnings Results by Business

The energy business recorded KRW 4.58 trillion in revenue, falling 5 percent from the same period last year and 8 percent from a quarter earlier. The unit’s operating profit stood at KRW 214.5 billion, down 32 percent on-year and 5 percent on-quarter. Its operating margin was 4.7 percent.

Despite sluggish demand for applications, the Automotive & ESS Battery Business achieved solid profitability.

The Automotive Battery unit saw growth in both revenue and operating profit year-over-year, owing to steady sales of P5 batteries for premium electric vehicles and the launch of P6 batteries for the North American market, as well as acquisition of the Advanced Manufacturing Production Credit. Due to seasonality, the ESS unit’s revenue and operating profit both declined in the first quarter.

The Small Battery Business’s revenue slid overall, but profitability improved pivoting on pouch batteries.

The revenue generated from the sales of cylindrical batteries dipped due to inventories of major customers in the micro-mobility sector. Meanwhile, the revenue and profitability from power tool batteries sales based on long-term supply agreements remained at the previous quarter level. Pouch batteries whose sales grew on high sales of new flagship smartphone models of a major customer drove the unit’s overall performance.

The Electronic Materials Business posted KRW 549.1 billion won in revenue, down 1 percent from a year earlier and 3 percent from a quarter earlier. Its operating profit stood at KRW 52.9 billion, decreasing 10 percent on-year and 38 percent on-quarter. The unit’s operating margin was 9.6 percent.

The revenue and profitability from the sales of polarizer film rose with the increased sales of display panels larger than 75 inches. The revenue and operating profit from the sales of semiconductor materials declined from the previous quarter due to customers’ inventories adjustments.

Business Outlook for the Second Quarter 2024

It is forecast that the Automotive & ESS Battery Business’ performance would improve gradually in the course of time. The Automotive Battery unit is projected to maintain its solid profitability through expansion of P6 sales, while the ESS unit is expected to achieve growth both in revenue and operating profit as the company plans to expand sales of Samsung Battery Box and batteries for uninterrupted power supply systems.

The Small Battery Business plans to explore new demand in pursuit of profitability. With cylindrical cells, the company will continue to raise profitability and secure stable volumes based on long-term supply agreements. The company will also make attempts to early enter the American outdoor power equipment market as well as the electric two-wheeler markets in India and Southeast Asia. Acquisition of new customers for 46-phi batteries and preparations for mass production will continue throughout the second quarter. First-in supplies of pouch cells for upcoming IT products in the second half of the year will be sought for.

A revenue growth is anticipated for the Electronic Materials Business as market demand is forecast to recover in the second quarter. Polarizer film sales is predicted to rise in accordance with the growing TV market in the third quarter. Sales of semiconductor materials is also expected to increase in line with the rebounding memory chip market. However, weak seasonality is likely to influence the OLED materials unit in the next quarter.

"Samsung SDI is progressing substantially in its journey for 'Super Gap' technological competitiveness and a profitable qualitative growth despite high uncertainties in the current business environment,” said Yoon-ho Choi, President and CEO of Samsung SDI. “By making hard efforts for a new level of change and innovation, the company will bring forward realizing its goal of being a global top-tier company by 2030.”

ESG Management Activities

Since its declaration of environment-friendly management, Samsung SDI has been carrying out the eight strategic tasks, including use of renewable energy, battery recycling and reducing industrial water consumption.

The company is preparing for establishment of its internal system in response to introduction of mandatory reporting of corporate sustainability under the European Sustainability Reporting Standards and International Financial Reporting Standards.

Furthermore, Samsung SDI is striving to increase sustainability within its supply chains. The company is collaborating with Responsible Business Alliance, a non-profit coalition of companies committed to supporting the rights and well-being of workers and communities worldwide affected by global supply chains, to help its partners in Europe, China and North America to fulfill their ESG initiatives. When necessary, the company visits the partners to provide training and education on ESG management.

III. Summary

From the export data, the total cumulative export volume of Korean ternary cathode materials (NCM+NCA) from January to April 2024 was 75,700 mt, down 23% YoY. According to the first-quarter report, the revenue of major Korean battery cell manufacturers showed varying degrees of decline, and the recovery of overseas market demand still needs time.