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Glencore's talks to sell cobalt to Chinese firm falter on price
[LONDON] Glencore is in talks to sell around 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 automakers 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 fuels.
A byproduct of copper and nickel smelting, cobalt extends the life of rechargeable lithium-ion batteries, which automakers typically guarantee for 8 to 10 years.
Expectations of supply shortages have fueled a rally that has taken prices to around US$39 a lb, from near US$10 a lb 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 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 minus 10 per cent.
No one at GEM was immediately available to comment.
Glencore declined to comment.
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 per cent of the global total estimated at around 110,000 tonnes by analysts.
"GEM will have an option to renew, renegotiate next year," a second source said. "They see themselves as a major player in China, responsible sourcing is important to them and listed on the Shenzhen exchange, they need 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 per cent 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 CATL deal was probably a one-off." Reuters reported last year that Chinese battery maker Contemporary Amperex Technology Co Ltd (CATL) agreed a four-deal 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.
Automakers 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 parliament recently approved, could see royalties on cobalt increase five-fold to 10 per cent.
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 mining output in the country.