This interview was first published in the May 2021 issue of Metal Market Magazine

Founded in December 2001, GEM Co., Ltd has become one of the leading battery recyclers and battery materials producers in China. The company contributes to 10% of recycling of electronics wastes and 10% of discarded batteries in China, as well as 5% of automobile recycling in the country.

The volume of cobalt it recycles has exceeded the primary cobalt mining yield in China, and its volume of recycled nickel is at a level equivalent to 8% of nickel from primary mining in China. In addition, it supplies over 15% of global nickel-cobalt-manganese (NCM) and nickel-cobalt-aluminium (NCA) precursor materials.

GEM, which stands for green eco manufacture, has also become the business philosophy and entrepreneurial faith for Kaihua Xu, the chairman of the company, he told Fastmarkets during an interview with Metal Market Magazine.

Initial interests
Studying in Central South University, which is famous for cultivating talents in metallurgy in China, Xu chose to research recycling of tin from toothpaste tubes as his college graduation project in 1985. “If I can extract tin from toothpaste tube wastes and produce the recycled tin into stannous sulfate, it will help to cut China’s dependence on imported cargoes,” Xu recalled.

At that time, China completely relied on imports of stannous sulfate, a type of coloring pigment used in aluminium extrusion manufacturing, he explained.
The project was successful and inspired Xu to pursue recycling as his academic direction, while his interest in this area was further strengthened following the successful application of innovations in producing high-purity iron powders from recycled steel scraps. “[In the early 1990s], steel scraps only cost around 1,000 yuan ($152) per tonne, but the high-purity iron powder could be sold around 7,000-8,000 yuan per tonne,” Xu told Fastmarkets, adding that a few companies realized the value of recycling and purchased this innovation from him.

The second half of the 1990s saw China starting to rely heavily on imported metallurgical raw materials after quite a few ferrous and non-ferrous mines in the country had been depleted.

“Some of the Chinese cities with rich metallurgical resources became depleted; for instance, Daye in Hubei province, which was once the place of origin for the country’s copper refining and manufacturing,” Xu said.

He also noted that besides imports of overseas resources, a few giant refineries in China started to secure raw materials by acquiring or investing in mining projects outside China, but not all of them were successful.

Xu asked himself at that time whether there was a third path, and his answer was recycling.

“We had a strong feeling in mid-1990s that China’s own resources can’t satisfy the country’s manufacturing and economic development, [therefore,] we need to build a path of recycling,” he said.

From scholar to entrepreneur
To seek the recycling path in China, Xu went to Tokyo University in 2001 as a visiting scholar in the Yamamoto research lab, and the experience contributed to the change in his career path. “The deepest impression I had was that Japanese research institutes didn’t spend a lot of time and energy in researching metallurgical refining, instead, they focused on researching recycling, or in other words, utilizing urban mining,” Xu said.

In addition, many giant enterprises in Japan, such as DOWA, were also dedicated to research and investment in recycling, he added. “It shocked me when China was still relying on imports of ores and concentrates, Japan had already developed its recycled resources to replace primary feedstock,” he said. “I came to realize it should also be the way that China needs to take.”

Meanwhile, Ryoichi Yamamoto, a scientist dedicated to eco-innovation and Xu’s tutor in Tokyo University, told Xu the green industry would be the largest industry among all. “He said the limitation of Earth was the limitation of environment. No matter how many populations we have in the future, we can survive; but if resources are depleted and the pollution is beyond what the earth could bear, there is no chance for human beings to survive,” Xu recalled.

“On top of all, Yamamoto told me that scholars needed to commercialize their innovations instead of just doing researches at campus.” This brought a few reflections to Xu and pointed to a clear direction of what role he could play in the path of recycling in China.

“As of 2000, I had studied recycling for 15 years, during which I managed to make a few successful innovations, however, I didn’t translate them into commercialized products by myself,” Xu said. “[But,] under the pressure of depletion and shortage of natural resources in China, we, as scholars, indeed need to think how to improve the sustainability of resources and environment in China.”

By and by, Xu, together with two of his college friends, decided to establish a company to roll out the philosophy of green and eco, and they named this company GEM. “It represents a green aspiration,” he said.

GEM is the first company in China to put forward the concept of “resources are limited, recycling is unlimited,” and started to implement urban mining, he told Fastmarkets.

After early-stage setbacks GEM was founded in Shenzhen, a vibrant hub of consumer electronics in southern China. Xu said the reason they chose to set up the company in that city was that it was a place where entrepreneurs could establish their business with minimal initial investments due to local government support, and what they lacked at that time was money.

“The other driver for us to do green industry in Shenzhen was that the European Union introduced the Restriction of Hazardous Substances (RoHS) in electrical and electronic equipment,” Xu said. “That is also why the Shenzhen government supported us in the eco-industry because the city was the center for manufacturing consumer electronics.”

After the RoHS Directive came into force in 2003, the EU restricted the use of several hazardous substances in consumer electronics, including lead, cadmium and mercury among others. As a result, Xu and his business partners decided to research and commercialize lead-free solder in consumer electronics.

But the good luck had not accompanied them long before the company was bogged down by the pressures of capital flows, he told Fastmarkets. Even though the research team in GEM quickly solved the technology bottleneck and obtained the patent at an early stage for lead-free solder in the country, and even got the first prize in awards for scientific and technological advancement in Shenzhen, the company could barely manage the operations.

“Commercializing this technology needed a lot of investments. Besides, the business required a high occupation of capital, but the payment period for electronics manufacturers was quite long,” Xu said.

What made matters worse was that the other two business partners decided to quit and pursue their academic careers instead. “I was really struggling and could barely afford the water and electricity fees for the operations, and even employees’ salary,” he recalled.

Despite all those challenges, Xu did not give up. Instead, he insisted on finding and developing a feasible recycling model. “I had to stick to my initial aspiration. There needs to be someone who practised those recycling innovations in manufacturing in order to solve the bottleneck of resources and the environment,” Xu said. “We were seeking light in the darkness.”

Turning points
A turning point came after Xu changed the business direction from lead-free solder manufacturing to battery recycling in 2003. “I had to solve two problems – first, to find a business pattern that can generate cash; secondly, to find venture capital to invest in the operations,” he said.

GEM then started to recycle nickel and cobalt from battery wastes, which did not cost a lot to purchase, and then produce them into nickel and cobalt powder, which, however, had high values.

The new opportunity was coupled with a policy tailwind when the Chinese government put forward the concept of the recycling economy in 2004, which helped GEM to obtain financial support from both government and venture capitalists. In that year, GEM got its first venture capital of five million yuan, which enable the company to set up a new recycling and manufacturing plant in Hubei province, Xu recalled.

In 2009, China proposed the concept of low carbon emissions for the first time, which in turn put GEM in the spotlight in the capital market after it was listed in 2010. “Being listed was a watershed for our business. After GEM was listed, the company set up 16 recycling parks in China,” he said.

“Before the company was listed, our sales revenue totaled 300 million yuan, but in 2019 it grew to more than 14 billion yuan.”

Core competitiveness
In the past ten years, GEM has set up a practical business model and seamless supply chain, which enables the company to stand up to fierce competition when an increasing number of companies in China have been involved in the recycling business, Xu noted.

“Recycling is a business that can be dated back in ancient Chinese history. But why were there no notable recycling enterprises in China? It was because we did not find a business model that combines technology, management and profit-making,” he said.

Technology innovations have been the focus for GEM since recycling of electronics requires quite advanced technologies, he noted, adding that the company has invested 2.5 billion yuan in research and development in the past five years.

“To process scrap in an efficient and environmental-friendly way, you need technologies to reduce the harm to the surrounding environment to a minimal level. In addition, you also need technologies to recycle the valuable resources from scrap and produce them into value-added products,” he said. “For instance, when recycling battery wastes, a critical problem is how to tackle performance repair of nickel and cobalt, which requires rearrangement of electron clouds in the atomic structure,” he explained.

“Besides, we need to manage the recycling plants in a scientific way by setting up recycling standards among others. Otherwise, the recycling plants will just turn into scrap yards.”

On top of all that, GEM has managed to identify a business and supply chain that is economically feasible and enables profit-making, he added.

EV battery life value chain
The business and supply chain that GEM has established involves the solutions for two problems – namely, allocations of resources and energy conservation – which happen to be the essence of carbon neutralization, a mission that is prioritized and reiterated in China in recent years, according to Xu.

The company has built up an enclosed supply chain – including recycling nickel and cobalt resources from wasted batteries and producing NCM and NCA battery materials – a chain he described as the EV battery life value chain. “GEM has been prioritizing feeding on recycled resources instead of primary resources,” he said. “Ahead of 2013, GEM hadn’t used a single tonne of ores and concentrates of nickel and cobalt.”

“GEM is now one of the largest customers of Glencore for cobalt hydroxide, and it is because we have grown our processing capacities too quickly that our recycled resources can’t satisfy the operations at current stage,” he explained.

In recent years, GEM has quickly ramped up its battery materials operations amid a booming electric vehicle (EV) market. The company produced 60,000 tonnes of NCM/ NCA precursor materials in 2019, though the output dropped to about 41,000 tonnes in 2020 due to the Covid-19 pandemic, according to Xu, adding that it is estimated the output will hit 100,000 tonnes in 2021.

He also told Fastmarkets that with the expansion of the company’s capacity to process scrapped batteries, the business is expected to cut its dependence on primary resources considerably in the following ten years. “At the current stage, the primary nickel and cobalt resources purchased by GEM accounts for 60% of the company’s total feedstock; but by 2025, the share of primary resources is expected to drop to 40%; and by 2030, GEM can mostly be independent of primary resources, realizing an enclosed supply chain for nickel and cobalt,” he said.

In addition, he pointed out that such EV battery life value chain needs contributions from all participants on the supply chain, including original equipment manufacturers (OEMs), battery manufacturers and battery materials producers. “We are working with global OEMs to recycle EVs. In the future, the EV battery supply chain will become a closed cycle,” he said.

China automobile manufacturer BAIC set up an EV battery recycling plant with GEM in Huanghua, Hebei province, in 2018, with the latter holding 15% shares, Xu noted.

Meanwhile, GEM is setting up a large-scale processing hub for scrapped EVs and EV batteries in Wuxi, Jiangsu province, aiming to build up recycling in the Yangtze River Delta, one of the regions in China which has seen the quickest adoption of EVs, he said, adding that the hub is expected to operate in 2022. The hub has annual capacity to recycle 100,000 units of EVs and process 100,000 tonnes of EV batteries.

GEM has also started to implement such a recycling model in Pohang, South Korea, and is also mulling implementing similarly outside China, including Europe, which is aggressively pursuing the electrification of transportation, Xu notes. “GEM aims to recycle 30% of global EV batteries by 2030, contributing to global carbon neutralization,” he said.

Xu said that after meeting the targets he set for the company by 2030, he would retire. “I would continue to do innovation research on recycling since I have my own national-level research and development center and post-doctorate training platform to cultivate related talents,” he said. “I am happy to return to research and contribute more innovations.”

“Recycling is unlimited, innovation is also unlimited,” he concluded.

Visit our hub for more in-depth insights into energy transition and its impact on commodities markets

Register for a free subscription to Metal Market Magazine here