Cobalt is up 40% this year due to continued demand from EV makers, highlighting the challenge of reducing dependence on the rare metal in battery production for long-distance vehicles.
Electric vehicle makers, including Tesla and Volkswagen, have pledged to cut the use of cobalt, which relies heavily on mining in the Democratic Republic of Congo, in the coming years. At the same time, production in the country is hampered by disruptions in supply chains due to human rights violations and high prices.
Prices for the world’s most expensive metal for battery production peaked in March since January 2019 at $ 25 a pound, according to Fastmarkets, and are now around $ 21. RBC analysts expect cobalt prices to reach $ 28.50 a pound this year and rise to $ 40 in 2024, as the shortage of alternative materials is predicted to remain.
After a 40% jump in 2020, electric vehicle sales more than doubled in the first quarter of 2021 from the same period a year earlier, according to the International Energy Agency.
“There has been no reaction yet on the supply side,” said Michael Widmer, an analyst at Bank of America. “Therefore, I believe that there may be a very large deficit, and then the question arises, where to get cobalt?”
“The growth in EV volume outweighs any substitution effect. Concerns about limiting the travel distance continue to persist, ”he added.
Mining problems in Congo
More than 60% of the world’s cobalt supply comes from the Democratic Republic of the Congo, which is dominated by Chinese companies and London-listed Glencore.
China’s largest battery manufacturer, CATL, said this month that its subsidiary had bought a stake in an untapped copper and cobalt project in the DRC for $ 138 million, indicating future demand for the metal.
“They will not invest in mining without a clear understanding that they need cobalt,” said Caspar Rawls, an analyst at Benchmark Mineral Intelligence.
However, a large share of the supply also comes from hundreds of individual mining companies. Automobile companies are reluctant to buy cobalt in the DRC due to claims of child labor: an estimated 15% of shipments are mined by hand, often by children. In this regard, BMW said it would only buy cobalt from mines in Australia and Morocco.
Last month, the Congo government began to take decisive action to tackle violations by creating a new government agency responsible for purchasing all of the hand-mined metal and developing controlled cobalt mining zones.
According to Jean-Dominique Tacis Cumbeau, head of Entreprise Générale du Cobalt, the company will eliminate child labor in the mining sector and also monitor how cobalt enters the production process. The company also plans to enter into deals with major car manufacturers.
“Child labor is not slavery, it is a source of livelihood in poor communities,” he said. – We must solve all these problems – it is imperative to exclude children from this process. Definitely, this is our main task. Then you need to make sure that the population, which makes a living from minerals, can receive a more stable income. “
While in China, the world’s largest electric vehicle market, an increasing number of electric vehicles are powered by alternative lithium iron phosphate (LPF) batteries that do not use cobalt or nickel, this substitution is offset by growing global demand for more powerful batteries.
“I still think cobalt will be an important component in batteries in the future,” said William Adams, head of base metals and batteries research at Fastmarkets. “Even though there will be less cobalt in the batteries, it will still increase the pressure on mining due to the huge consumption of electric vehicles and energy storage.”
Tesla Model 3 vehicles manufactured at the Shanghai plant mainly use alternative lithium iron phosphate batteries. Chinese automaker BYD said all of its models will use these batteries, and Volkswagen said last month that it will use LVF batteries for base models around the world from 2023.
However, as of February, LVF batteries accounted for only 14% of the energy stored in batteries worldwide, according to consulting firm Rho Motion. According to her forecasts, by 2030 this figure will be between 15% and 20%, mainly in small cars.
EGC is partnering with Swiss commodity trader Trafigura to sell cobalt to international buyers. Cleaning up the cobalt supply should make it more palatable to car buyers, says James Nicholson of Trafigura.
“Manual labor is absolutely essential if we are to meet the ambitious emission reduction targets,” he added.
Cobalt prices are volatile. In 2018, they rose to $ 45 per pound, and fell to a low of $ 12 per pound the following year. Glencore, the world’s largest cobalt producer and supplier to Tesla, closed the Mutanda mine in Congo in the summer of 2019 due to low prices. Bank of America’s Widmer said prices may need to rise above $ 25 for larger mines to start mining.