Bloomberg reported recently that Tesla is in talks to buy cobalt from Glencore for its third gigafactory
Mining.com | January 20, 2020 | SmallCapPower: Annual cobalt production is only around 130,000 tonnes, mostly as a byproduct of nickel and copper mining. Some two-thirds of supply comes from the Democratic Republic of the Congo, where fears about political instability and the challenges of ethical sourcing combine to supercharge supply concerns.
(Originally published on Mining.com on January 15, 2020)
Bloomberg reported Wednesday that Tesla is in talks to buy cobalt from Glencore for its third gigafactory, recently opened in Shanghai, according to people familiar with the matter. Tesla, alongside Google, Apple and others, were sued by a human rights group in December about artisanal cobalt mining in the Congo.
Neither the Swiss miner nor the electric vehicle manufacturer, which is targeting production of 150,000 annual units in Shanghai would comment, but should the deal go through it would mark the fifth long-term supply deal made by Glencore over the past year.
In April, Glencore signed a deal with BMW to provide the German luxury vehicle company with cobalt from its Murrin Murrin mine in Australia.
Glencore also signed three other large, long term deals in 2019, with Korean battery manufacturer SK Innovation for 30,000 tonnes (enough to make 2m EVs with today’s cathode technology), Belgian chemicals giant Umicore and China’s GEM, a battery recycler.
Benchmark Mineral Intelligence, a battery supply chain and price reporting company, estimated that even before today’s report that the publicly announced agreements in 2019, alongside private deals, suggest that already “more than 80% of Glencore’s DRC cobalt hydroxide production will be locked up in long-term agreements.”
If the Glencore–Tesla deal happens it would leave precious little for the spot market in the coming years.
But so far, these developments and Glencore’s decision in August to halt operations at its Mutanda copper-cobalt mine in the Congo until at least 2021, have done very little to boost the market.
Considering that Mutanda is the world’s largest cobalt mine and responsible for a fifth of global output, the market response has been more than disappointing, with only a couple of months of rising prices.
Benchmark reports cobalt prices came under renewed pressure in December, most notably for cobalt hydroxide, which plunged by more than 10% over the course of the month.
Cobalt hydroxide is usually produced at mines as part of the primary processing of cobalt ores and typically contains 20-40% cobalt. The Asian import price of cobalt hydroxide was $20,800 per tonne (100% Co contained basis) at the end of the year, according to Benchmark data.
That constitutes a 47% drop in price over the last year and compares to price above $80,000 a tonne mid-2018:
The weak price performance over the year has seen significant y-o-y increases in import volumes of cobalt hydroxide into China as refiners look to capitalise on low prices, with Jan-Nov imports in 2019 up 29% y-o-y.
The outlook for the short term is not rosy, and Benchmark predicts further weakness in the Chinese market during lunar new year celebrations.
Spot trading will reduce significantly due to the long delivery lead times from the Congo, which is typically associated with falling prices, says Benchmark.
Another concern for cobalt bulls is weakness in China, responsible for every other EV sold around the world.
Changes to Chinese subsidies for hybrid and battery-powered vehicles – or new energy vehicles in local parlance – that came into effect mid-June had a dramatic impact on the domestic market.
Official figures released on Monday showed annual EV sales in 2019 dropping for the first time ever to 1.21m units, compared to 60% growth in the previous year.
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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