How can Korea’s top steelmaker crack the battery market?

South Korean steelmaker POSCO is well-versed at rolling out new products for the automotive sector. But the company’s new focus isn’t the steel used in frames or body structures: POSCO is shifting its attention to the batteries that power electric vehicles.

It recently announced a plan to capture 20% of the global market for battery materials, targeting 23 trillion won (US$19 billion) in sales by 2030.

This ambitious target is driven both from a commitment to become a carbon-neutral company by 2050 and a business opportunity. One car’s lithium-ion battery pack contains about 8kg of lithium, 35kg of nickel, 20kg of manganese and 14 kg of cobalt.¹ And with global EV sales forecast reach 31.1 million by 2030 – almost one third of the total market for new car sales – demand for batteries is set for rapid growth.²

Faced with this level of sustained and increasing demand, battery suppliers are acting now to ensure they have supply chains in place to maintain production as demand for key minerals increases.

“Fulfilling our ambition to become a leading EV battery manufacturer requires that we reduce supply uncertainty and diversify our raw materials sources,” said POSCO Chairman Choi Jeong-woo. “This will also help us manage raw material price fluctuations.”

To finance this ambition, POSCO in August sold euro-denominated bonds convertible into shares in the company. The EUR 1.07 bn (USD 1.26 bn) five-year issue is South Korea’s first green convertible bond and its largest equity-linked deal. It is issued under POSCO’s sustainable financing framework, which incorporates the International Capital Market Association’s standards for green and social bonds and is externally verified by Sustainalytics.

The proceeds will be used to expand its rechargeable battery materials and green hydrogen businesses, setting up a reliable supply chain as well as a battery recycling facility and researching new battery technology.

Among its targets for materials production by 2030, subsidiary POSCO Chemical intends to produce 220,000 tons of lithium and 100,000 tons of nickel, as well as 400,000 tons of cathode materials and 260,000 tons of anodes for EV batteries. Targeting demand for highly efficient battery components, it has broken ground on a nickel refining facility, and is building cathode material plants in the EU, US and China.

HSBC acted as joint bookrunner on the convertible bond issue. “Green financing on this scale not only signals POSCO’s serious intent to become a major supplier of EV battery materials, but also provides the means for the company to take a substantial step forward in realising this ambition,” said Sangho Rhee, Co-CEO for Global Banking and Markets at HSBC Korea. “The euro convertible bond market offers an extremely cost-effective way for the company to diversify its funding sources.”

From October 2021 to August 2026, investors have the option to exchange the bonds for POSCO shares at USD408 each, equal to 3.4% of its outstanding equity. POSCO also enjoys a negative interest rate on the bonds, which will redeem at maturity at a discount to the offer price if they are not converted.

“Climate change is a global challenge which requires global solutions,” said Choi. “Heavy manufacturing must undergo rapid, fundamental change if we are to be a positive driver of decarbonisation. Creating the infrastructure to facilitate EV uptake is one way that POSCO will contribute to a net-zero future.”