Lotte Energy Materials shifts capex to AI circuit copper foil

Lotte Energy Materials said Nov. 8 that its high-end circuit copper foil business for artificial intelligence hardware is targeting a double-digit operating profit margin by 2027, driven by rapid capacity additions.

The South Korean supplier plans to lift circuit foil from 14% of revenue in 2026 to 40% by 2029. The strategy accelerates a move away from standard electric vehicle battery foil following severe Chinese price competition.

Annual circuit foil capacity at the Iksan plant in North Jeolla Province will increase from 6,700 tons to 16,000 tons by 2027. The conversion project requires an investment of 49 billion won ($36 million).

The company expects circuit foil sales volume to double next year, executives said. High-end product lines will make up more than 50% of those total shipments.

Demand centers on hyper-very-low-profile foil — an ultra-smooth copper sheet engineered to prevent signal loss during high-frequency transmission. Artificial intelligence servers require flatter copper surfaces to maintain data integrity.

The materials maker currently mass-produces Grade 3 and Grade 4 specifications while developing Grade 5 foil. The grading reflects surface roughness, with higher numbers denoting smoother copper textures.

Lotte Energy Materials dedicated an initial annual capacity of 1,800 tons at Iksan to Grade 4 foil after passing customer qualification in February. Shipments directly feed advanced artificial intelligence accelerator supply chains.

Doosan Electronics BG sources the Grade 4 material from Iksan to fabricate copper-clad laminates — the resin-copper composite sheets that serve as printed circuit board foundations. Doosan saw electronics materials revenue surge 47% this year.

Doosan uses the laminate to assemble packaging substrates destined for major graphics processing units. The arrangement links Lotte Energy Materials directly to global data center construction programs.

The portfolio shift follows record quarterly revenue reported on Nov. 5. Consolidated third-quarter sales reached 289.7 billion won ($216 million), rising 102% from a year earlier on shipments for North American grid storage.

Third-quarter operating loss narrowed 38% year on year to 21.3 billion won ($15.9 million). Operating costs rose modestly from the second quarter due to trial runs at a newly completed plant in Malaysia.

Net income swung to a profit of 70.4 billion won ($52.6 million) during the period. The bottom line gained from a 111.1 billion won divestment gain from selling subsidiary Lotte EcoWall.

The sale of the 90% stake in Lotte EcoWall generated 170.8 billion won in gross cash. Management directed the capital toward high-end semiconductor foil equipment and production lines.

Financial leverage remained modest following the restructuring. The balance sheet closed September with a 31.5% debt-to-equity ratio and a 18% borrowing ratio, according to regulatory filings.

Chinese manufacturers have flooded the global market for standard battery foil, crushing unit margins across Asia. Chinese mills expanded capacity rapidly, prompting South Korean producers to curtail general-purpose battery foil investments.

In contrast, global demand for high-end hyper-very-low-profile circuit foil will grow at a 33% compound annual rate through 2030, according to company projections. Total worldwide market demand currently stands below 30,000 tons.

United States technology companies are requiring component suppliers to source non-Chinese materials for computing clusters. The Iksan site operates as South Korea's only domestic facility producing circuit copper foil.

Japanese incumbent Mitsui Mining & Smelting has long dominated the global market for ultra-low profile carrier foil. The South Korean expansion aims to contest Japanese market share among international chip packagers.

Beyond the current 16,000-ton project, management is reviewing additional capital spending for 2028. That phase would introduce dedicated machinery for ultra-thin copper foil — sheets measuring less than five micrometers across.

The planned machinery would fabricate carrier-supported ultra-thin foil used in flip-chip ball grid array substrates. Such substrates carry high-bandwidth memory stacks and host server processors.

Battery foil operations will concentrate at the company's facility in Kuching, Malaysia. That overseas plant will handle six-micrometer foils optimized for North American lithium iron phosphate energy storage systems.

Management expects consolidated operations to return to an operating profit in the second quarter of 2027. Production lines at the Malaysian plants will ramp up output to match storage contracts.

Line conversion work at the Iksan plant will conclude in the first half of 2027 to establish the 16,000-ton run rate. The company plans to review equipment tenders for the 2028 phase next November.

The company has not disclosed the volume allocation across individual cloud server customers, nor has it published yield figures for its Grade 4 production lines.

Lotte Energy Materials shares traded at 33,550 won in Seoul trading on Friday, valuing the material specialist at approximately 1.34 trillion won ($998 million).