(Yicai Global) May 4 -- Huayou Cobalt, a leading Chinese cobalt supplier, intends to build another joint venture factory for ternary cathode materials with local partners in South Korea to mitigate the impact of tightening import rules in the United States and Europe.

Huayou has penned a memorandum of understanding with POSCO Future M, a South Korean manufacturer of cathode and anode materials, and the local government for the two firms to invest in a JV in Pohang, the Zhejiang province-based company said in a statement yesterday.

The US Inflation Reduction Act and the stricter foreign trade rules of the European Union are prompting Chinese battery material manufacturers to build joint venture production facilities abroad. Last month, Huayou said it will team up with LG Chem to establish a plant in South Korea. Another Chinese battery material supplier GEM said in March that it will form a JV plant in Gunshan, South Korea.

The Pohang JV will make intermediate products such as refined nickel sulfate and ternary precursors, Huayou said, without disclosing more details about the equity structure, planned capacity, or construction schedule.

Formerly known as POSCO Chemical, POSCO Future M is one of the major South Korean suppliers of cathode materials for ternary lithium batteries. It is controlled by Pohang Iron and Steel, a global steel giant.

Huayou has been suffering from declining profitability. In the first quarter, the firm's net profit fell by 15 percent to CNY1 billion (USD144.9 million) from a year ago, per an earnings report published during the May Day holiday. However, revenue rose 45 percent to CNY19.1 billion (USD2.8 billion) amid increasing sales of ternary precursors and cathode materials.

Last year, the company recorded only 0.3 percent increase in net profit to CNY3.9 billion as large fluctuation in cobalt and nickel compounds prices forced Huayou to make provision for impairment of inventory and accounts receivable by CNY1.5 billion, the firm said in its annual earnings report. Its revenue, however, surged 78 percent to CNY63 billion amid robust demand.

Huayou's stock price [SHA: 603799] dropped 0.7 percent to CNY51.61 (USD7.50) as of noon as the shares began trading again after a three-day holiday.

Editor: Emmi Laine, Xiao Yi