Cobalt market recharged by carmaker endorsement

Author Thomas Kavanagh, Reporter

In recent months, the potential for cobalt-free and cobalt-light batteries has looked more likely to diminish cobalt’s role in the battery sector.

This week, that potential was delayed until at least 2025 as one of the world’s most influential vehicle producers gave the metal an endorsement that could affect supply-demand dynamics for the next few years.

US-based Tesla is understood to have signed a deal with Switzerland-based Glencore for several years’ worth of cobalt supply from the Democratic Republic of the Congo (DRC) in a move regarded by market participants as an endorsement not only of the role of cobalt in batteries but also of Glencore’s supply chain in the DRC. Neither company has been willing to confirm the widely discussed deal, but neither have sought to deny it.

Others too have renewed their commitment to using Glencore cobalt in their supply chain, with South Korea’s SK Innovation having signed a deal for up to 30,000t of cobalt over six years, Samsung SDI for 20,000t over five years and GEM for 61,200t over five years, all from 2020 onwards.

To fulfil these orders, Glencore might need to enter the market for cobalt hydroxide next year, with the effect of driving up prices and potentially leading to a near-term deficit in cobalt. Argus assessed cobalt hydroxide prices at $9.70-10.80/lb cif China on 24 June.

LFP vs NMC
The threat to cobalt came from the rapid development of lithium-iron-phosphate (LFP) battery technology in China. LFP batteries are marketed as having a better safety performance than cobalt-containing batteries. Recently, Chinese automaker BYD demonstrated its “Blade Battery”, an LFP battery that can be pierced with a nail without the risk of catching fire – boosting its appeal to safety-conscious carmakers eager to reduce any risks to their customers.

But the downside to LFP batteries is performance. Nickel-dense, cobalt-containing batteries such as nickel-manganese-cobalt (NMC) of various ratios perform much better and go further on a single charge, one of the key points of contention for anyone buying an electric vehicle.

Tesla may be attempting to balance its portfolio with exposure to both technologies. In China, the company won approval to use LFP batteries in its Model 3 vehicles produced in its Shanghai gigafactory. Despite this, the deal with Glencore is expected to provide cobalt to both Berlin and Shanghai gigafactories, meaning the higher-performance vehicles will likely opt for NCM battery chemistry for years to come.

The deal is positive news for a cobalt market that is facing a slowdown in demand for other end-uses. Demand for alloy-grade cobalt metal from the aerospace industry has fallen amid a collapse in new aircraft orders.

“The Tesla deal solidifies cobalt’s position as the in-demand battery material. Even if our alloy orders are down, the long-term picture is fine and that helps us to secure financing,” one cobalt trading firm said.

Tightening supplies
The longer-term demand outlook for cobalt is robust, but not without risks. A World Bank report into metals required to build power generation capacity said cobalt will account for about 6.2pc of global demand for “energy minerals” until 2050. Argus Consulting forecasts that refined cobalt production will rise to 209,000t by 2030, but demand is expected to outstrip that, hitting 218,000t by 2030.

Sourcing cobalt from the DRC is a high-risk strategy. With its central African location, the nearest ports are thousands of miles away across multiple borders – a vulnerability exposed by the coronavirus crisis. Lockdowns in South Africa and border closures in Rwanda, Zambia and Tanzania have intermittently impeded transit routes of cobalt hydroxide over the past few months. 

The DRC is also vulnerable to civil strife and epidemics. Aside from Covid-19, the country has suffered two outbreaks of Ebola in the past year. The ongoing civil conflict in the north of the country has sent hundreds of thousands of refugees towards the nation’s wealthier mining areas.
Corruption and questionable mining practices persist. Tesla was named in a US lawsuit linked to cobalt supply in the DRC, and last week the Office of the Attorney General of Switzerland announced it was launching an investigation into Glencore over “failure to have the organisational measures in place to prevent alleged corruption in the Democratic Republic of the Congo”. Glencore said it is co-operating fully with Swiss authorities.

The company has taken steps to reduce exposure to corrupt practices. Last year, Glencore joined the Responsible Sourcing Blockchain Network and said it does not purchase any artisanal-mined cobalt, a particular problem in the region. The willingness of several battery producers and automakers to use DRC-sourced Glencore cobalt can be interpreted as an endorsement of their operations and of cobalt chemistry going forward.

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