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A Closer Look at Taiwan's Battery Materials Industry's Tariff Issues with Japan - Interview with Mechema (美琪瑪)

09/26/2022 12:11 FREE

 Currently, nickel sulfate imported to Japan is subject to a 3.9% tariff, but many countries are exempt from the tariff due to their membership in FTA, TPP, or RCEP. In such a situation, only Taiwan, which cannot belong to any trade agreement, is said to be left behind. I first learned of this during a conversation with Mr. K, a visitor to the Battery Summit hosted by MIRU on August 31. He introduced me to Mechema (Mechema International Co., Ltd.), and on September 22, I had an interview with Mr. Leselie Tsai, vice president of Mechema, and Mr. Nick Yen, son of Mechema's chairman and director of the Commercial Department.

 

 

From left to right: Mr. Leselie Tsai, author, and Mr. Nick Yen

 

 First of all, I would like to express my gratitude to Mr. K. and Mr. Betty, Director of the Product Department of Commerce Division, for connecting me with Mr. Tsai and Ms. Tsai on the Mechema side.

 

 Everyone is aware of Taiwan's current position in international politics. Taiwan is not only facing the political issue of whether it is an independent country, but also various industrial and business issues.

 

 What is the situation of Taiwan's battery materials industry?

 As mentioned at the beginning of this article, a 3.9% tariff is still applied to nickel sulfate from Taiwan, which is not included any trade agreement. What is happening as a result?

 

 For example, if LME Nickel is $21/kg, Ni content in nickel sulfate is 22%, and the processing cost of nickel sulfate is $0.50/kg, the price in the duty-free case would be CIF Japan = ($21 x 0.22 ) + $0.50/kg = $5.12/kg. On the other hand, if 3.9% is imposed there, the price would be $5.12 + import tax $5.12 x 0.039 = $5.32/kg, and this price difference becomes even more pronounced when the nickel price increases. The only way to make up the $0.20/kg price difference is to discount the processing fee of $0.50/kg (the globally accepted level) by $0.20/kg, or as much as 40%. To ensure accuracy, we will answer each question in the following manner.

 

Q: What are your thoughts on the 3.9% tariff on nickel sulfate for Japan?

A; With regard to exports of nickel sulfate to Japan, Taiwan is the only country left out while many other countries except Taiwan have been exempt from duty since 2021. As a result, nickel sales to Japan declined last year, albeit slightly. It has picked up again recently, but I am concerned that the tariff issue will continue to be a problem and that the volume of transactions will continue to decline rapidly.

 

Q: I understand that you are discounting processing fees to make up the difference in tariffs.

A: Yes, we are. Under tariff equality, Taiwanese nickel sulfate was price competitive. However, with the 3.9% tariff, its price competitiveness has weakened. In particular, South Korea has also been exempted from the tariff due to its membership in the RCEP since 2021. It is this duty exemption for Korea that is having a major impact.

 

Q: Have you made any protests to the government or the various trade agreement organizations regarding this issue?

A: Yes, we have. As for Taiwan, once we became aware of such a move, we communicated our opinions to the National Trade Administration. I believe that Taiwan has also expressed its opinions to the various trade agreement organizations. We were also informed in advance so that we could take action quickly. However, Taiwan has not been able to enter into the trade agreements themselves, so while we can express our opinions, we cannot do anything about the decisions that have been made. Since this is a country-to-country issue, for example, Taiwan cannot interfere in the internal affairs of the FTA if it is not a member of the FTA.

 

 We have heard that our business partners have conveyed their opinions to the Japanese government and various trade agreement organizations, and they are continuing to lobby them. However, my impression is that it may be difficult to overcome the current situation at this point.

 

Q: Have there been any changes in Mechema's trading partners since the tariff issue came up?

A: There has been no change. Our main products are PTA oxidation catalysts and battery materials, and Japan has always been our largest sales partner for battery materials. I believe that Japan will continue to be our main sales destination. Depending on the product, Japan accounts for 30-40% of our sales. For PTA oxidation catalysts, we sell worldwide.

 

Q: Do you have any breakthrough plan to solve the tariff problem?

A: Currently, we have a catalyst plant in Thailand. If the tariff issue cannot be resolved in the future, we are considering investing in battery material facilities at our plant in Thailand and exporting nickel sulfate produced in Thailand to Japan. However, since battery material facilities require a large investment and cost, the cost of the product itself may increase compared to what we currently provide from Taiwan. We are still considering this matter carefully, as we expect our products to be price-competitive.

 

Q: Is there anything you would like to tell the Japanese government and related companies about the tariff on nickel sulfate?

A: The current situation where tariffs are being applied only to Taiwan means that the price of Taiwanese nickel sulfate is not simply higher in the Japanese market. What is happening is that other duty-free countries, so-called our competitors, are raising their prices, taking into account the fact that nickel sulfate from Taiwan is subject to tariffs. Normally, Japanese companies would be able to purchase the product at a 3.9% lower price because of the duty-free status, but since Taiwan is subject to a 3.9% tariff, they can sell the product at 2% more than they would otherwise.

This is a disadvantage for the Japanese market. Currently, the demand for battery materials is increasing, and the procurement of raw materials is part of the overall issue for the country's industry. If the tariffs on nickel sulfate from Taiwan were eliminated and prices could be competed as before, this would lead to cost reductions in the Japanese battery industry as a whole, making it more competitive and adding to the development of the industry. We hope that the Japanese government and related companies will understand that this is not simply a matter of the high price of nickel sulfate imported from Taiwan, but is related to the cost of the entire market.

 

 Having focused on the tariff issue in the Taiwanese battery industry, I would like to reintroduce a company called Mechema, which is located in the industrial area of Guanyin District, Taoyuan City, in northern Taiwan.

 

 

Mechema headquarters i. Photo by YUKO

 

 Mechema was originally a Taiwanese subsidiary of a British company, which was invested and acquired by the current chairman in 1992 and established as a 100% Taiwanese company. In 2001, the company was listed on the Taiwan Stock Exchange. Its main business is PTA oxidation catalysts, for which it holds the top share in the world market. Since this catalyst uses a large amount of cobalt metal, the company has been independently researching and developing cobalt-related products since its establishment.

 

 Later, the company also began handling magnetic materials and battery cathode materials, and recently its business with Japan has been gaining attention due to the growing portion of its business related to battery materials. In the battery industry, the company provides the most upstream raw materials, such as cobalt sulfate and nickel sulfate, and Japan is the number one destination for these products.

 

 According to its official website, the company's current main solutions are "battery materials," "recycling technology," "oxidation catalysts," "cobalt-related products," and "nickel-related products." These five categories can be roughly divided into "battery materials" and "oxidation catalysts," and the current profits are almost identical. The current profits are almost the same. In "recycling technology," Mechema provides technical advice to companies offering oxidation catalysts, and collects used catalysts from them, recycles them, and returns them to Mechema for finishing into products. The company also recycles battery scrap, and the recovered cobalt and nickel are used for both catalysts and battery materials.

 

 The company is headquartered in Taiwan, but also has oxidation catalyst plants in Korea, Thailand, Indonesia, Malaysia, and China. The reason for this was that liquid oxidation catalysts are difficult to transport, so the company builds plants in the countries where it provides them and sells them locally.

 

 At the end of the interview, he talked about the company's future goals and direction.

 

 “We will continue to develop our business as we have in the past, and in particular, we would like to focus on recycling. At present, recycled materials account for about 30% of our raw materials, and we import nickel and cobalt metals for the rest. We would like to increase the percentage of recycled raw materials in the future. We believe this will lead to cost reductions in our products. We collect recycled raw materials mainly from battery scrap generated by factories through scrap collectors, but in the future we would like to get involved in collecting batteries directly from automobile manufacturers. Mechema wants to be more than a simple supplier; we want to be a company that can work together with our customers to solve any problems they may have. I believe that recycling will become an important issue for many customers in the future. We want to focus on both oxidation catalyst recycling and battery recycling."

 

 

Vividly colored product samples were displayed in the reception room.

 

 

 I will continue to interview Mechema and report the latest information in the future. Please stay tuned.

 

 

(IRUNIVERSE i.YUKO, translated by S. Aoyama )

 

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