Growing activity in the electric vehicle market is driving more manufacturers who rely on lithium-ion battery production to seek long-term cobalt supply deals
As car manufacturers move toward the mass production of electric vehicles (EV), demand for metals associated with the new production lines has grown and is expected to grow further, driving some car and battery manufacturers to seek term cobalt supply. Cobalt is one of the metals most affected by the growth of battery-powered vehicle production.
Cobalt is trading at its highest price since 2008, having risen by around 400pc over two years. The rising price reflects plans to produce EVs in greater numbers, but it also reflects the fact that the Democratic Republic of Congo (DRC) – which supplies more than 60pc of the world’s cobalt – may increase taxes on the metal. The already high cobalt price and the possibility of costs being raised further at mine and/or port is bringing more companies to the market in their quest for security of supply.
Though triggered by the expected growth of the EV market, the rush to secure term supply is no longer confined to car manufacturers and their battery suppliers. Recently, car makers have been joined in the search for term deals by smartphone and tablet manufacturers including Apple and Samsung, which are among the world’s biggest cobalt consumers.
Apple is reportedly in discussions with miners to secure several thousand tonnes of cobalt for a minimum period of five years. The company’s plan to secure term supply has been in place for at least a year and little detail about possible counterparties is known, but Glencore is believed to be among companies that have been in talks with Apple.
Samsung has reportedly approached Somika SPRL with an offer to buy cobalt from its Kisanfu mine in the DRC. Details of any proposed term arrangement have not been reported, but it is thought that the miner would be open to a supply deal lasting at least one or two years.
Meanwhile, the EV manufacturers’ search for term cobalt supply continues, with companies including Tesla, Volkswagen and BMW seeking to make deals over the past year. Volkswagen’s failed attempt to make a deal last year illustrates the difficulty faced by cobalt consumers in a high and rising market. BMW recently announced that it does not plan to make term supply deals for cobalt or lithium until at least 2020, at which point the company expects mass EV production to be profitable enough to merit long-term offtake deals with miners.
The current state of the cobalt market was anticipated by some investors. Key among them is Russian owner of Cobalt 27 Capital Anthony Milewski, who started buying and stockpiling the metal in 2015. Industrial commodity prices were caught in a slump when Milewski started to buy. Now, with the cobalt price at four times what it was two years ago, Cobalt 27 owns around 3,000t of the metal – the world’s biggest private stockpile.
Some cobalt consumers – including EV and smartphone manufacturers – will likely succeed in securing term deals with miners, but there is little incentive for miners to sell forward at prices close to current levels. Without an unforeseen price correction linked to demand, buyers keen to eliminate price risk with term deals could be seen signing contracts at a premium to the market.