Chapter 4. A Strategy to Secure Materials in Response to Energy Transition
C. Stockpiling of mineral materials needed for energy transition
PPS lists silicon as one of its minerals for stockpiling, but in reality, it stockpiles only ferrosilicon, not silicon metal. This study will review only the adequacy of the nation’s current stockpiling of silicon metal using the PPS evaluation criteria of global risk, weakness in responding to supply risks, and economic importance.
Silicon metal is produced in countries such as China, Brazil, Norway, the United States, France, and Russia.
The market share of the top three producers (China, Brazil, and Norway) is 79.1% (as of 2016), and therefore, the current supply is highly monopolistic. This is similar to ferrosilicon.79 Silicon metal, like ferrosilicon80, is being produced in countries that are considered to have a high degree of political instability, such as China and Russia.
As discussed in Chapter 3, Global demands for silicon metal are skyrocketing due to the increased manufacture of solar panels.
In terms of economic importance, silicon metal is imported at higher volumes than ferrosilicon. Yoojeong Kim (2017) assessed the adequacy of PPS ferrosilicon stockpiling efforts and determined that, based on its import volume, ferrosilicon has an extremely high economic value. Ferrosilicon imports have been maintained at similar levels for many years. In contrast, silicon metal imports have increased relatively quickly due to rising demands (for the manufacture of solar panels, and semiconductors, etc.).
Table 4-8. Silicon Metal and Ferrosilicon Imports (as of 2017)
Mineral Weight (tons) Import amount (1,000 USD)
Silicon metal
(Si<99.99%) 172,299.3 335,003
79For ferrosilicon, the market share of the top three producing countries was 81% as of 2015.
80Yoojeong Kim (2017) p.97
Ferrosilicon
(Si>55%) 262,965.5 286,742
Source: Korea Customs Service, Trade Statistics (https://unipass.customs.go.kr:38030/ets/) accessed on October 29, 2018.
As discussed in the previous section, silicon metal is not less important than ferrosilicon in terms of either supply risk or economic importance. Therefore, it is necessary to actively review the stockpiling of silicon metal.
2) Stockpiling of lithium and cobalt
Unlike silicon metal, lithium and cobalt have been selected as targets by PPS and are currently being stockpiled.
As previously discussed, lithium suppliers are highly concentrated in three countries, signifying a highly monopolistic supply (one of the criteria for stockpiling). Although excess supply is expected in the short term, it is necessary to continue stockpiling lithium to ensure an adequate supply in the long term. However, lithium can only be stockpiled at special facilities that can block moisture, and only for periods of time that are relatively shorter than other minerals. Given these considerations, it seems more important to stockpile an adequate amount of battery-grade lithium carbonate, which is increasingly needed for energy transition, instead of simply increasing the nation’s lithium stockpile. PPS already stockpiles battery-grade lithium carbonate and seems to be responding appropriately to this necessity. However, despite these efforts, as of December 2017, the PPS had managed to stockpile 485 tons of lithium, only around 35% of its goal of 1,400 tons.81 Stockpiling is a measure to respond to short-term supply risk, and therefore, the PPS should try to achieve its targeted acquisition goal. These stockpiling efforts, if successful, have the potential to evolve into established systems. Currently, the PPS does not have detailed provisions on the timing and/or quantity of minerals to be acquired for stockpiling. As a matter of fact, the PPS management rules stipulate that the Contract Officer is able to make these types of decisions based on current conditions.
As discussed previously, cobalt is associated with short-term supply and demand risks, and stockpiling is the most appropriate way to mitigate these risks. The PPS maintains a stockpile of cobalt that can last for around 60 days. The cobalt that is stockpiled, however, is cobalt metal and powder, not cobalt sulfate or cobalt oxide, the latter of which are used to produce secondary batteries. The reason for this is that cobalt sulfate and cobalt oxide cannot easily be stored.
Based on trade statistics from 2018, cobalt used for the manufacture of secondary batteries represented 79% of all cobalt imports, while cobalt metal and powder represented only 9% of all cobalt imports.82 This discrepancy emphasizes the need for government coordination with domestic companies. In 2009, according to a PPS report published by the Korea Institute of Geoscience and Mineral Resources the same year, the “item (among the various forms of cobalt being stockpiled) with the highest likelihood of continued growth in demand is cobalt compound used to manufacture cathode active materials for secondary batteries; however, the long-term storage of this form of cobalt requires special packaging and management. Korea Unicore has the greatest domestic demand for this material, but it receives a stable supply from its headquarters in Belgium.” Today, however, a wide variety of companies—from small-and-medium enterprises that manufacture battery precursors to large conglomerates that manufacture secondary batteries—express demands for cobalt compound. In order to acquire and maintain a stable supply of materials, it is increasingly important for the government to listen and respond to the needs of domestic companies.
3) Need to review stockpile target and release criteria
The PPS target for cobalt stockpiles is 142 tons, and as of December 2017, it maintains a stockpile of 164 tons.83 These numbers are the result of setting a target of 60 days based on average import volumes from 2013 to 2015.
However, if the target is re-calculated based on import amounts from 2016 to 2018—a time during which import volumes skyrocketed—it increases by more than 100 tons. This difference in targets emphasizes the need to consider the rapidly changing market environment and take appropriate measures. For example, it may be
81 Internal data from the Minerals Department, Overseas Resources Development Innovative Task Force (May 2018).
82 Based on import amount.
83Internal data of the Minerals Department, Overseas Resources Development Innovative Task Force (May 2018)
necessary to include a clause in stockpile regulations stating that the target can be adjusted based on the largest import volume within the past three years, provided that the import volume rate of increase is greater than a certain amount.
Lastly, PPS needs to set up detailed criteria for the release of stockpiled minerals. The prices of lithium and cobalt have quadrupled and tripled, respectively, from 2015 to 2018, and the price of lithium almost quadrupled in a single year. Even under these conditions, however, the PPS did not release any of its stockpiled minerals. In contrast, in September 2018, the Ministry of Trade, Industry, and Energy (MOTIE) decided to release 20 tons of zirconium from its 50-ton stockpile when zirconium prices doubled over the course of a single year.84
This inconsistency in the release of stockpiled minerals can be attributed to criteria differences between PPS and KORES. In fact, even the regulations for the release of minerals differ between the two institutions. The first consideration for the release of stockpiled minerals is timing. KORES times its releases to coincide with times of stability, times of unstable supply and demand, and times of supply and demand emergency. This is reflected in its project management rules. KORES’s criteria for the categorization of supply and demand conditions are as follows:
Similar to KORES, PPS categorizes situations into “times of stability,” “times of uncertainty in supply and demand,” and “times of emergency” and has detailed operational guidelines for release depending on each situation. PPS’s detailed criteria for the release of its stockpiles are as follows:
84http://www.motie.go.kr/motie/ne/presse/press2/bbs/bbsView.do?bbs_seq_n=160814&bbs_cd_n=81¤tPage=1&searc h_key_n=&cate_n=&dept_v=&search_val_v=, MOTIE press release (September 6, 2018).
Management Rules for Minerals Stockpiling Projects
Chapter 2 Article 11 (Criteria for the categorization of supply and demand conditions)
① Criteria for the categorization of supply and demand conditions pursuant to Regulations Article 18 (2) take into consideration different factors that are based on quantitative standards, including the price disparity rate and changes in import volume, and factors related to the qualitative evaluation or industrial issues.
② Price disparity and changes in import volume, as mentioned in the previous clause, are calculated using a prescribed formula [established later in the Article].
③ The establishment of “times of stability, times of instable supply and demand, and times of supply and demand emergency,” as stated in Clause 1 [not quoted in this text] shall be based on a quantitative assessment of risks associated with supply and demand.
④ Once the symptoms of supply and demand risks have been recognized, as defined in the preceding clause [not quoted in this text], the industrial causes must be identified before it can be determined that there is an instability or emergency of supply and demand. If the industrial cause cannot be determined, a “time of stability” will be established as a default.
< Appendix I of the Detailed Guidelines for the Release of Stockpiles>
Conditions for release
Emergency
A. In the case of an adverse disruption in the national economy (i.e. war)
B. In the case of a serious interruption of supply due to issues such as an international resource crisis caused by labor strikes in major producing countries
C. In the case that a ministerial council in which the chief of the central administrative agency recognizes the need to urgently release the stockpile
Unstable supply and demand
A. In the case that a ministerial council in which the chief of the central administrative agency recognizes the need to urgently release the stockpile
B. In the case that the weekly unit price increases rapidly for three consecutive weeks and there is a demand for release by companies that have a need for rare metals
Times of stability
Conditions that constitute release for ordinary-time sales, inventory cycling, and/or the reduction of financial burdens but are not conditions of emergency or unstable supply and demand
(Excerpt from Appendix I of the Detailed Guidelines for the Release of Stockpiles)
As can be seen by comparing the operating rules of PPS and KORES, the two institutions have different criteria for the release of stockpiles. These differences make it difficult to establish a consistent stockpile release plan. A consistent plan is necessary to effectively utilize stockpiled minerals and so that businesses can rely on and utilize stockpile releases if they have a problem securing necessary amounts of materials. In order to establish such a plan, the two institutions must establish consistent, detailed criteria for stockpile release, and fundamentally, be integrated to prevent pluralization. Along with this, it is worth reviewing the possibility of transferring all rare
Article 4 of the Detailed Guidelines for the Release of Stockpiled Goods (Release criteria for different situations)
① In terms of stockpile release, situations shall be categorized as “times of emergencies,” “times of unstable supply and demand,” “times of stability.” Situations and/or conditions that do not meet any of the following criteria shall not be considered for stockpile release.
② Detailed criteria on the degree of price fluctuations and other measurement and non-measurement factors that constitute a situation where supply and demand is unstable pursuant to Article 23 (2) and (3) and Appendix I of Operation Regulations shall be subject to this guideline (Appendix I) for each item, and the following shall be applied based on principle:
1. In conditions classified as “times of emergency” under Article 23 (2) and Appendix I of the Operation Regulations, stockpiled inventories maintained for safety and operational purposes may be released in their entirety.
2. In conditions classified as “times of unstable supply and demand” according to this guideline (Appendix I), the degree of instability shall be categorized into one of three levels according to the criteria for each item, and the limit. According to the category of instability, 50%, 80%, or 100% of the inventory for operational purposes may be released.
3. During times of stability, up to30% of the inventory held for operational purposes for each item may be used for ordinary-time release, inventory cycling, and the reduction of financial burdens.
③ In case the stockpiles cannot be released according to the release conditions for different circumstances stipulated in
② above, release criteria may be re-established after deliberation of the council.
metal stockpiling, which is currently carried out by both institutions, exclusively to KORES, which has a greater amount of expertise in this area.
2. Urban mining