(Yicai Global) Nov. 2 -- A unit of Yahua Industrial Group will provide South Korean battery maker SK On with lithium hydrate, a key raw material used in electric car batteries, in a deal that could be worth as much as CNY16.2 billion (USD2.2 billion), the Chinese civil explosives maker and owner of lithium compound assets said.

Lithium Ya'an will supply between 20,000 tons and 30,000 tons of battery-grade lithium hydrate to the Chinese division of SK On between 2023 and 2025, Chengdu, southwestern Sichuan province-based Yahua said yesterday, citing the agreement between the two subsidiaries.

Although no estimates regarding revenue were mentioned, the deal could be worth as much as CNY16.2 billion based on last week's price of around CNY540,000 (USD74,257) per ton on the Shanghai Metals Market.

Pricing will be determined based on a formula that the buyer and seller agree upon, said Yahua.

The deal will help absorb future capacity from Yahua’s unfinished battery-grade lithium hydroxide base which will have an annual capacity of 30,000 tons, the firm said. It will also help enhance partnerships with key clients and play a positive role in enhancing Yahua’s competitiveness on the lithium market.

The Yahua unit is also supplying US electric car giant Tesla with battery-grade lithium hydroxide. The firm signed a five-year deal with California-based Tesla in 2020 that was worth USD880 million based on market prices at the time.

Yahua, which owns a lithium mine in Sichuan province and has an annual output of 40,000 tons of battery-grade lithium compounds, is rapidly expanding its battery raw materials capacity to meet surging demand from battery makers.

Unaffected by the news, Yahua’s share price [SHE:002497] closed down 0.3 percent at CNY27.47 (USD3.77) today.

Editor: Kim Taylor