Glencore, the world’s top cobalt producer, agreed to sell about a third of its output of the metal to Chinese supplier of battery chemicals GEM Co., the Shenzhen-listed company said in a filing.

Related report: http://www.cri-report.com/energy-chemicals-materials-non-ferrous-metal/678-2658-report-on-global-and-china-s-cobalt-industry-2018-2022.html

The three-year deal is set to shake the auto industry as the biggest brands rush to lock down battery supplies essential to their survival in the coming EV era. It also bolsters China’s dominance in the battery industry, coming a day after Volkswagen AG signed $25 billion of contracts with three of the biggest Chinese and Korean producers.

“It tells us once again that it is China rather than the western world who properly understands the raw material requirements and value of global vehicle electrification,” Paul Gait, an analyst at Sanford C. Bernstein in London, said in a note. “They clearly get it; the West doesn’t seem to at the moment.”

China’s drive to secure other raw materials for batteries was also seen last week as an Australian producer said giant manufacturer Shaanxi J&R Optimum Energy Co. had begun takeover talks to control one of the world’s newest lithium mines.

The biggest automakers are caught in an arms race to develop technology and supply chains needed to overhaul their gasoline and diesel fleets and roll out more EVs over the next decade. Key to that are two huge cobalt mines run by Glencore in the Democratic Republic of Congo.

Glencore plans to double its output over the next two years in the country, which already produces about 65 percent of the world’s cobalt. The commodity giant has held talks with VW, Tesla Inc. and Apple Inc., as well as major battery makers, but GEM’s deal is the first major supply agreement made public.

Under the accord, GEM and its subsidiaries will lock in 13,800 metric tons of cobalt contained in hydroxide from Glencore this year. That rises to 18,000 tons in 2019 and 21,000 tons in 2020. The numbers represent about 35 percent of Glencore’s planned cobalt output this year, 28 percent the next and 33 percent in 2020.

With an almost four-fold jump in prices in the past two years, Glencore CEO Ivan Glasenberg has said the company would only sell on a floating-price basis that allows it to benefit from further gains. GEM didn’t disclose the pricing for its deal, and a Glencore spokesman declined to comment.

Mine to plant
Volkswagen last week said it’s seeking to produce 3 million battery-powered vehicles a year by 2025. The plans are backstopped by deals with leading battery suppliers Samsung SDI Co., LG Chem Ltd. and Contemporary Amperex Technology, sufficient for the first wave of production, CFO Frank Witter told Bloomberg TV.

Businesses including Apple and BMW, as well as VW, have previously tried to strike supply deals directly with miners, an unprecedented step in such companies’ efforts to source manufacturing materials. This week’s events may indicate that it will be metals processors and battery producers which will take the lead in securing deliveries of the commodity.

GEM turns intermediate cobalt into other related chemicals that it sells to battery makers. It extracts most of its feedstock from recycled batteries and electronics, according to a bond prospectus published in November.

GEM didn’t say whether it has signed onward contracts with makers of batteries or cars. However, the company is a major supplier to CATL, one of the battery makers backing up VW’s supply deal, according to a CATL initial public offering prospectus.

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Congo-Kinshasa has the world’s largest reserves of cobalt ores, representing 50%. The country also ranked first in terms of production volume of cobalt ores. Its annual production volume of cobalt maintained between 70,000 tons and 90,000 tons for the previous three years, accounting for over 70% of the global volume. The ore grade of cobalt in Congo-Kinshasa is mainly evaluated between 0.3% and 0.5%, much better than that in other places of origin. Generally, 8%-10% of local ores are for open-pit mining.

It is estimated that the added global production capacity of refined cobalt will be 12,000 tons and 11,000 tons in 2018 and 2019 respectively at corresponding growth rates of 11.89% and 8.99%.

Related report: Report on Global and China’s Cobalt Industry, 2018-2022

According to industries, global downstream consumption of cobalt can be classified into lithium battery, high-temperature alloy, cemented carbide, magnetic material and other industrial demand. Demand of lithium batteries mainly includes that of 3C electronic consumer goods and new energy vehicles. High-temperature alloy usually functions as irreplaceable materials of high-temperature heated end components such as aviation engines, rocket engines and combustion turbines. Thus, cobalt based high-temperature alloy plays a significant role. Other industrial demand includes traditional demand of hard surfacing materials, pigments, catalysts and organic materials, exhibiting comparatively stable growth rates.

With emergence of consumption of new energy vehicles, the global consumption structure of cobalt has changed significantly. The proportion of new energy vehicles ascended from 4.0% in 2014 to 13.4% in 2016 and is expected to reach 22.7% in 2018. Change of this industrial structure suggests that the accelerating demand for new energy vehicles will greatly facilitate demand for cobalt and exert certain impacts on the cobalt price.

In 2016, 104,500 tons of cobalt were in demand globally, up by 9.90% YOY. Specifically, demand of new energy vehicles was 13,900 tons, that of 3C electronic consumer goods was 37,700 tons, that of high-temperature alloy was 16,100 tons, that of cemented carbide was 8,600 tons and industrial demand was 20,600 tons. Global demand for cobalt is expected to be 114,900 tons and 127,800 tons in 2017 and 2018 respectively, at corresponding growth rates of 9.99% and 11.26%.

Driven by new energy vehicles, global demand for cobalt grew at a rate of 9.90% in 2016. The global demand volume of cobalt was 104,500 tons in 2016, among which demand volume of power battery materials was 13,900 tons at a growth rate of 74.81%. Supply shock along with fast growing demand reversed the supply-demand relationship of cobalt in 2016, leading to shortage of cobalt. The era of scarce cobalt has approached. Increasing demand and supply shock resulted in supply shortage of cobalt of 3,300 tons and continuously rising price of cobalt in 2016.

The added global supply of refined cobalt is projected to be limited during 2017-2019. In the following three years, there will be a limited number of new cobalt ores and refined cobalt projects but demand for cobalt will keep growing fast. Considering limited recovery of output volume of hand-grabbing ores, it still takes time to improve the pattern of shortage. We predict that the growth rate of the global supply of refined cobalt will be 8.11%, 11.89% and 8.99% respectively from 2017 to 2019, with corresponding demand volume of refined cobalt being 109,300 tons, 122,230 tons and 133,300 tons.

Global demand for cobalt will continue to rapidly expand in the next two years owing to strong demand for new energy vehicles. The growth rate of global demand for cobalt is expected to reach 9.99%, 11.26% and 15.02% respectively from 2017 to 2019, with corresponding demand volume of refined cobalt being 114,900 tons, 127,800 tons and 147,000 tons.

Cobalt is likely to be in short supply in the global market during 2017-2019, with price constantly rising. We project that the shortage volume of cobalt metal will be 5,600 tons, 5,500 tons and 13,700 tons in 2017, 2018 and 2019 respectively and that the cobalt price will remain strong.

The post Analysis on Production Volume and Market Concentration Rate of Global Cobalt Industry first appeared on CRI Report.