Glencore. Picture: REUTERS
Glencore. Picture: REUTERS

London/Beijing — Glencore is in talks to sell about a quarter of its cobalt output in a one-year deal to Chinese firm GEM, but price is a sticking point as Glencore and other major producers are now able to exert more influence in negotiations, sources said.

Cobalt has increasingly come under the spotlight over the last year as vehicle makers lay out plans for massive investments in electric vehicles (EVs), where demand is accelerating due to governments around the world moving to cut noxious emissions from carbon-based fuels.

A by-product of copper and nickel smelting, cobalt extends the life of rechargeable lithium-ion batteries, which vehicle makers typically guarantee for eight to 10 years.

Expectations of supply shortages have fueled a rally that has taken prices to about $78/kg, from close to $20 in January 2016 and to their highest since July 2008, before the financial crisis started.

One source close to the matter said GEM had not yet signed a contract for this year with Glencore, which was offering a price with a fixed instead of a percentage discount to the monthly average from trade publication Metal Bulletin. "Volume and price are still under discussion," the source said, adding that volumes being discussed for 2018 were "more than 10,000 tonnes", which is bigger than last year’s one-year contract of "less than 10,000 tonnes".

Previously, contracts for cobalt hydroxide, the raw material which is eventually turned into cobalt sulphate used in the rechargeable lithium-ion batteries that power EVs, were typically agreed at the Metal Bulletin price less 10%. No one at GEM was immediately available to comment. Glencore declined to comment.

Clean cobalt

Glencore is the world’s largest producer of cobalt. The Swiss-based miner has said it would produce about 39,000 tonnes this year or about 35% of the global total, estimated at about 110,000 tonnes by analysts.

"GEM will have an option to renew, renegotiate next year," a second source said. "It sees itself as a major player in China, responsible sourcing is important to it and, listed on the Shenzhen exchange, it needs to be squeaky clean." GEM owns KLK or Jiangsu Cobalt Nickel Metal, which produces metal approved by the London Metal Exchange for delivery against its cobalt contract.

Responsible sourcing refers to the focus on acquiring cobalt that is not tainted by child labour, particularly from the Democratic Republic of Congo (DRC), which, this year, is expected to produce more than 60% of world supply. Most of Glencore’s cobalt comes from the DRC.

"Glencore’s cobalt is seen as clean; if you want sustainable it’s top of the list," a cobalt consumer said. "Contracts for more than a year or two are unlikely ... The Contemporary Amperex Technology (CATL) deal was probably a one-off." Reuters reported last year that Chinese battery maker CATL agreed a four-deal late in 2016 to buy large amounts of cobalt from Glencore. CATL’s listing prospectus, published last year, names Glencore as a top five supplier.

Vehicle makers such as Volkswagen looking to accelerate their production of EVs would prefer to lock up cobalt supplies for long periods, in line with their business models. But producers are traditionally reluctant to commit as much can change with respect to costs in a short period of time.

A proposed new mining code in the DRC, which its parliament recently approved, could see royalties on cobalt increase five-fold to 10%. The code also removes a stability clause in the current law protecting miners from changes to the fiscal and customs regime for 10 years.

"Then there are the power problems," a cobalt trader said. The DRC is plagued by massive energy shortfalls that, for years, hit its mining output.

Reuters

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