There’s a Global Race to Control Batteries—and China Is Winning

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Chinese companies dominate the cobalt supply chain that begins at mines in Congo
Russell Gold
Feb. 11, 2018 1:46 p.m. ET

KOLWEZI, Democratic Republic of Congo—Miners push bicycles piled high with bags of a grayish-blue ore along a dusty road to a makeshift market. There, they line up at wholesalers with nicknames such as Crazy Jack and Boss Lee.

Most of the buyers are Chinese. Those buyers then sell to Chinese companies that ship the bags, filled with cobalt, to China for processing into rechargeable, lithium-ion batteries that power laptops and smartphones and electric cars.

There is a world-wide race to lock up the supply chain for cobalt, which will likely be in even greater demand as electric-car production rises. So far, China is way ahead.

Chinese imports of cobalt from Congo, the world’s biggest producer of cobalt, totaled $1.2 billion in the first nine months of 2017, compared with just $3.2 million by India, the second-largest importer, government data show.

“We’re realizing that the Congo is to [electric vehicles] what Saudi Arabia is to the internal combustion engine,” says Trent Mell, chief executive of exploration company First Cobalt Corp. , based in Toronto. Chinese firms are keenly aware of Congo’s importance to electric vehicles, he says, and “trying to control the whole ecosystem…from cobalt mining to battery production.”
mining to battery production.”

From Congo to China

Congo produces more than half of the global supply of cobalt.

Percentage of raw cobalt production, by country

China

6%

Congo

54%

Other

40%

Much of Congo's cobalt winds up in processed cobalt sulfate.

Percentage of world-wide cobalt sulfate production

Other

20%

China

80%

Lithium-ion battery production is concentrated in four countries.

Percentage of global production capacity*

U.S.

14%

China

56%

Germany

9%

Other

14%

Sweden

9%

*2020 forecast

Sources: U.S. Geological Survey (cobalt production); Benchmark Mineral Intelligence (cobalt sulfate, production forecast)

China already is the world’s largest electric-car market. In 2011, Beijing listed electric vehicles as one of seven “strategic emerging industries.” Developing a homegrown battery industry became a vital part of the government-sponsored push. The Chinese government provides subsidies to domestic battery makers, essentially locking out foreign companies.

Companies from China now dominate the first steps in the lithium-ion battery production process. Such firms produce about 77% of refined cobalt chemicals, up from 67% in 2012, according to commodities researcher CRU Group . George Heppel, a consultant at CRU, says Chinese companies could soon have more than 90% of the market.

About 54% of the global cobalt supply comes from Congo. Chinese companies dominate the network of middlemen who buy cobalt from freelance miners such as those lining up at the market in Kolwezi.

Congolese cobalt miners at a mine in 2015. Freelance miners, called creuseurs, produce more than 10% of the cobalt output in Congo. PHOTO: KENNY KATOMBE/REUTERS
The freelancers are known as creuseurs, the French word for diggers. They unearth cobalt with picks and shovels, earning about roughly $300 per ton of ore, up from $200 a year ago. U.S. and European companies have grown wary of cobalt suppliers who buy from creuseurs, partly because some of the miners are children. They rarely wear masks or other safety equipment. Crippling injuries are common.

“A stone fell on me,” says Jean Kayombo Asani, 20 years old, pointing to a big gash on his forehead. He has been a cobalt miner since he was 15. “There are enormous risks, like landslides. One can fall and die,” he adds.

Industry researcher Darton Commoditiesestimates that creuseurs produce as much as 14% of the cobalt output in the central African nation.

Tesla Inc. said last year its cobalt supplier in Congo is “very reputable,” without identifying the supplier. The auto maker sent a team to the country to make sure its supply chain doesn’t include child labor or cobalt mined by creuseurs. Tesla hasn’t said if it made any changes as a result.

For years, traders who bought cobalt from freelance miners often sold it to Congo DongFang International Mining, a unit of Chinese giant Zhejiang Huayou Cobalt Co. , according to human-rights group Amnesty International and other people familiar with Congo’s cobalt market.

A Zhejiang Huayou spokesman says it stopped buying last April from wholesalers who cater to creuseurs and is trying to buy more from industrial miners that have greater control over the production process. The company is making the changes with help from a nongovernmental organization called Pact, the Zhejiang Huayou spokesman adds.

Contemporary Amperex Technology Co., based in China's coastal Fujian province, is one of the country\'s largest makers of electric-vehicle batteries. PHOTO: QILAI SHEN/BLOOMBERG NEWS
Few commodities have had more dramatic increases in demand than cobalt, primarily a byproduct of copper and nickel mining. Global cobalt production has quadrupled since 2000 to about 123,000 metric tons a year, according to the U.S. Geological Survey.

Plugged In

With the projected rise in electric vehicle sales…

Electric vehicles as a percentage of all vehicles sales

10

%

8

6

4

2

PROJECTIONS

0

’24

’22

’20

’18

’16

2014

…the amount of cobalt used in their batteries is projected to skyrocket.

Cobalt used in electric and hybrid vehicles

60

thousand metric tons

40

20

0

’20

2014

’16

’22

’18

’24

Note: 2017 through 2025 are projections.

Source: Morgan Stanley

Demand is growing even faster and is expected to reach more than 200,000 tons by 2025, according to researcher Wood Mackenzie. Electric cars are a big reason why. About 1,300 metric tons of cobalt were used in electric vehicles in 2014, Morgan Stanley estimates. The total is expected to rise to 11,320 tons this year and 62,940 tons by 2025.

Such expectations have caused cobalt prices to more than double in the past year in London trading. Cobalt prices are up more than 230% since the end of 2015, according to Thomson Reuters.

Precious Metal
Cobalt prices have risen sharply over the past two years.

a ton

$80,000

60,000

40,000

20,000

0

’13

’17

’15

’12

’14

’11

’16

2010

Source: FactSet

“If our projections for electric vehicles are anywhere near close, there are going to be some serious issues in the cobalt market” after 2020, says Jack Bedder, an analyst who follows cobalt for the London market-intelligence firm Roskill. Tight supply would give China yet another advantage because of its strength in the cobalt supply chain.

Swiss miner Glencore PLC is the world’s largest cobalt producer, including 27,400 tons from Congo last year. Glencore expects its output to more than double in next few years.
mining to battery production.”

From Congo to China

Congo produces more than half of the global supply of cobalt.

Percentage of raw cobalt production, by country

China

6%

Congo

54%

Other

40%

Much of Congo's cobalt winds up in processed cobalt sulfate.

Percentage of world-wide cobalt sulfate production

Other

20%

China

80%

Lithium-ion battery production is concentrated in four countries.

Percentage of global production capacity*

U.S.

14%

China

56%

Germany

9%

Other

14%

Sweden

9%

*2020 forecast

Sources: U.S. Geological Survey (cobalt production); Benchmark Mineral Intelligence (cobalt sulfate, production forecast)

China already is the world’s largest electric-car market. In 2011, Beijing listed electric vehicles as one of seven “strategic emerging industries.” Developing a homegrown battery industry became a vital part of the government-sponsored push. The Chinese government provides subsidies to domestic battery makers, essentially locking out foreign companies.

Companies from China now dominate the first steps in the lithium-ion battery production process. Such firms produce about 77% of refined cobalt chemicals, up from 67% in 2012, according to commodities researcher CRU Group . George Heppel, a consultant at CRU, says Chinese companies could soon have more than 90% of the market.

About 54% of the global cobalt supply comes from Congo. Chinese companies dominate the network of middlemen who buy cobalt from freelance miners such as those lining up at the market in Kolwezi.

Congolese cobalt miners at a mine in 2015. Freelance miners, called creuseurs, produce more than 10% of the cobalt output in Congo. PHOTO: KENNY KATOMBE/REUTERS
The freelancers are known as creuseurs, the French word for diggers. They unearth cobalt with picks and shovels, earning about roughly $300 per ton of ore, up from $200 a year ago. U.S. and European companies have grown wary of cobalt suppliers who buy from creuseurs, partly because some of the miners are children. They rarely wear masks or other safety equipment. Crippling injuries are common.

“A stone fell on me,” says Jean Kayombo Asani, 20 years old, pointing to a big gash on his forehead. He has been a cobalt miner since he was 15. “There are enormous risks, like landslides. One can fall and die,” he adds.

Industry researcher Darton Commoditiesestimates that creuseurs produce as much as 14% of the cobalt output in the central African nation.

Tesla Inc. said last year its cobalt supplier in Congo is “very reputable,” without identifying the supplier. The auto maker sent a team to the country to make sure its supply chain doesn’t include child labor or cobalt mined by creuseurs. Tesla hasn’t said if it made any changes as a result.

For years, traders who bought cobalt from freelance miners often sold it to Congo DongFang International Mining, a unit of Chinese giant Zhejiang Huayou Cobalt Co. , according to human-rights group Amnesty International and other people familiar with Congo’s cobalt market.

A Zhejiang Huayou spokesman says it stopped buying last April from wholesalers who cater to creuseurs and is trying to buy more from industrial miners that have greater control over the production process. The company is making the changes with help from a nongovernmental organization called Pact, the Zhejiang Huayou spokesman adds.

Contemporary Amperex Technology Co., based in China's coastal Fujian province, is one of the country\'s largest makers of electric-vehicle batteries. PHOTO: QILAI SHEN/BLOOMBERG NEWS
Few commodities have had more dramatic increases in demand than cobalt, primarily a byproduct of copper and nickel mining. Global cobalt production has quadrupled since 2000 to about 123,000 metric tons a year, according to the U.S. Geological Survey.

Plugged In

With the projected rise in electric vehicle sales…

Electric vehicles as a percentage of all vehicles sales

10

%

8

6

4

2

PROJECTIONS

0

’24

’22

’20

’18

’16

2014

…the amount of cobalt used in their batteries is projected to skyrocket.

Cobalt used in electric and hybrid vehicles

60

thousand metric tons

40

20

0

’20

2014

’16

’22

’18

’24

Note: 2017 through 2025 are projections.

Source: Morgan Stanley

Demand is growing even faster and is expected to reach more than 200,000 tons by 2025, according to researcher Wood Mackenzie. Electric cars are a big reason why. About 1,300 metric tons of cobalt were used in electric vehicles in 2014, Morgan Stanley estimates. The total is expected to rise to 11,320 tons this year and 62,940 tons by 2025.

Such expectations have caused cobalt prices to more than double in the past year in London trading. Cobalt prices are up more than 230% since the end of 2015, according to Thomson Reuters.

Precious Metal
Cobalt prices have risen sharply over the past two years.

a ton

$80,000

60,000

40,000

20,000

0

’13

’17

’15

’12

’14

’11

’16

2010

Source: FactSet

“If our projections for electric vehicles are anywhere near close, there are going to be some serious issues in the cobalt market” after 2020, says Jack Bedder, an analyst who follows cobalt for the London market-intelligence firm Roskill. Tight supply would give China yet another advantage because of its strength in the cobalt supply chain.

Swiss miner Glencore PLC is the world’s largest cobalt producer, including 27,400 tons from Congo last year. Glencore expects its output to more than double in the next few years.
 
Last edited:

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