Cobalt’s supply shock a painful warning to electric carmakers
It is unwise to rely on a supply chain dominated by the Democratic Republic of Congo
A worker holds a chunk of raw cobalt after a first transformation at a plant in Lubumbashi before being exported, mainly to China, to be refined. Photograph: AFP/Getty Images
Cobalt is a niche commodity that seemed to have finally found its place in the batteries powering the electric car revolution. But, despite rising sales with the launch of mass market models, such as Tesla’s Model 3 and Audi’s e-Tron, the metal has been in the doldrums this year.
Until this week, when Glencore, the leading producer was forced to stop selling cobalt out of its largest mine in the Democratic Republic of Congo (DRC) following the discovery of radioactive uranium in the metal, an unfortunate twist for the Swiss-based trader that could give the wider market a recharge.
Last year, cobalt prices almost doubled from a year earlier as carmakers scrambled to secure supplies of a metal with which they were not familiar – a race symbolised by Volkswagen’s summoning of producers to its Wolfsburg headquarters in an attempt to hash out a supply deal. This year, however, prices have fallen about 6 per cent, to $33.50 (€29.50) a pound, as Glencore and other large miners ramped up supply.
Glencore’s glitch has already boosted the share prices of its competitors, with Hong Kong-listed China Molybdenum jumping to its highest level in 11 weeks. China Molybdenum, which bought the Tenke copper and cobalt mine in the DRC for $2.65 billion (€2.33 billion) in 2017, had seen its shares fall 31 per cent this year, despite a 156 per cent jump in net profit in the first three quarters.
The sudden supply interruption is also a painful warning to carmakers about the insecurity of relying on a supply chain dominated by the DRC. The country, one of the poorest in the world, supplies about 60 per cent of the world’s cobalt.
However, the shortage might be shortlived. The DRC has a handful of smaller cobalt refiners and producers which source the metal from thousands of small-scale miners who dig it out by hand using picks and shovels. That supply has dropped off this year in the face of lower prices and increased production from Glencore. But it could easily spring back to meet demand. Such mining accounted for up to 16 per cent of global supply of cobalt last year, according to Darton Commodities, and Glencore’s arch rival, Trafigura, is increasingly trading in cobalt from smaller mines.
Meanwhile, new, larger mines are also coming on stream. ERG, a Kazakh company formed out of the former ENRC, which was delisted from London in 2013 amid allegations of fraud and corruption, will begin production at its flagship RTR cobalt and copper mine in the DRC this year. The company has not yet signed any large customer deals, according to traders. But China’s huge battery makers will come calling very soon.
No one wants to tell carmakers that the cobalt they need for the switch to electric is not available.
– Copyright The Financial Times Limited 2018