SK On to source W160b in LFP cathode materials from L&F to build China-free ESS supply chain

SK On will source 160 billion won ($117 million) worth of lithium iron phosphate (LFP) cathode materials from L&F as the battery maker expands production of LFP cells for energy storage systems (ESS) in the United States and South Korea and moves to secure a domestic supply chain for key materials long dominated by Chinese suppliers.

The two companies signed the LFP cathode supply agreement Thursday at SK On's Gwanhun Campus in Jongno-gu, Seoul, and announced the deal Friday. Kim Seong-tan, SK On's head of raw material procurement, and Lee Byeong-hui, L&F's chief operating officer, attended the signing ceremony.

Under the agreement, SK On will receive high-density LFP cathode materials for ESS use from L&F from this year through the end of 2028, with the total supply valued at about 160 billion won. The two sides also left open the possibility of extending the contract by up to three additional years, subject to review of supply performance, market conditions and customer demand.

The cathode materials will go into LFP battery cells for ESS produced at SK On's factory in Seosan, South Chungcheong Province, and at its plant in Georgia.

LFP batteries are generally cheaper than ternary batteries that use nickel and cobalt, and are valued for their thermal stability and long cycle life. Although their energy density is relatively lower, demand has been growing rapidly, particularly for large-scale ESS applications and entry-level electric vehicles.

Chinese companies are estimated to account for more than 90 percent of the global LFP cathode supply chain. As demand for non-Chinese battery materials grows, especially in the United States, South Korean battery and materials companies have been accelerating efforts to build their own production bases.

SK On has been developing ESS as a new growth engine alongside its electric vehicle battery business. Last month, it signed a deal with US-based ESS company Neovolta Power to supply a total of 9 gigawatt-hours of LFP battery cells over five years starting in 2027, a contract the industry estimates at around 1.5 trillion won. The two companies are also pursuing a plan to expand their cooperation to a cumulative 18 gigawatt-hours.

In South Korea, SK On secured 284 megawatts out of 565 megawatts put up for bid in the second round of the ESS central contract market auction in February.

To meet growing ESS demand, SK On is converting some of its existing electric vehicle battery production facilities for ESS use. At the Seosan factory, 3 gigawatt-hours of the total 7-gigawatt-hour production capacity will be converted to an ESS-dedicated LFP line, with supply expected to begin in the first half of next year. A portion of the Georgia factory's production lines will also be converted to manufacture ESS LFP battery cells.

"As the shift away from Chinese suppliers accelerates in the global ESS battery market, we have proactively secured high-quality domestic LFP cathode materials through a medium- to long-term supply agreement," Kim said. "This contract will significantly strengthen SK On's competitiveness in LFP battery materials."

For L&F, the deal is expected to serve as a turning point in expanding its business portfolio beyond its high-nickel cathode focus into LFP materials.

L&F established a wholly owned subsidiary, L&F Plus, dedicated to its LFP business in August last year. The company set up a dedicated LFP cathode factory on a roughly 100,000-square-meter site in the Dalseong-gun national industrial complex in Daegu. The factory was completed in May, and L&F shipped its first trial production from the domestic LFP cathode mass production line in late July.

The product L&F will supply to SK On is a third-generation high-density LFP cathode material developed to achieve a packing density of 2.50 grams per cubic centimeter or higher, targeting the low energy density that has traditionally been seen as a weakness of LFP chemistry.

L&F plans to scale up production in stages. The company entered commercial production at an annual capacity of 30,000 tons at the end of the third quarter and aims to reach an annual capacity of 60,000 tons by the first half of 2027. Further expansion will be considered if demand continues to grow.

L&F has also been diversifying its customer base, having earlier supplied LFP prototype materials to other customers in North America.

"This contract is recognition of L&F's LFP product competitiveness, customer responsiveness and early mass production capability," Chief Operating Officer Lee said. "We will continue to expand our customer base in the ESS and entry-level EV markets on the strength of stable mass production and differentiated product competitiveness, and grow into a leading materials company driving the global non-Chinese LFP supply chain."