Glencore, GEM extend cobalt supply deal until 2029
Swiss miner-trader Glencore and Chinese battery materials producer GEM have extended their agreement for cobalt hydroxide supply by another five years.
The extended deal means Glencore will supply GEM with about 150,000 tonnes of cobalt, contained in hydroxide, between 2020 and 2029.
The two companies first signed a contract in October last year, under which Glencore would supply GEM and its subsidiaries with at least 61,200 tonnes of cobalt (in hydroxide) between 2020 and 2024.
GEM released in an official document on December 4 detailing the yearly breakdown of the base tonnages for the 10-year purchase scheme. The company will purchase 13,000 tonnes in 2020 and then 13,200 tonnes each year between 2021 and 2024; followed by 14,400 tonnes each year between 2025 and 2029.
Prices for cobalt metal have proved relatively stable of late, amid uncertain demand from traditional cobalt consuming sectors, such as aerospace and steel.
Fastmarkets’ benchmark daily price assessment for cobalt standard grade, in-whs Rotterdam stands at $15.50-16 per lb as of the December 2 assessment, and has traded in a range of $15.50-16.20 per lb since the beginning of October. Metal prices posted year-to-date highs of $17-17.50 per lb in March and year-to-date lows of $13.75-14.05 per lb in July.
But cobalt hydroxide payables - the percentage of the metal price buyers and sellers agree for the supply of intermediates - have rallied in response to tight spot supply, the protracted logistical impact of a March-April lockdown in South Africa and continued growth in electric vehicle battery-related demand.
Fastmarkets’ cobalt hydroxide payable indicator stands at 80-81% of the price for cobalt standard grade (low-end), up from 61.5-62% at the beginning of the year, and at its highest level since Fastmarkets started assessing spot payables in January 2019.
“Despite the Covid-19 pandemic in 2020, the adoption of new energy vehicles is accelerating, and there is no doubt that they are revolutionizing the world’s automobile industry. As a result, cobalt, as one of the key raw materials for EV batteries, will become a global strategic resource of extreme importance for the rapidly growing new energy vehicles market in China and the rest of the world,” GEM chairman Xu Kai Hua said.
Some automakers are taking steps to reduce the cobalt component in their EV batteries in favor of higher nickel or lithium-iron-phosphate (LFP) chemistries. But cobalt is still required in higher nickel cells since it provides stability and prevents thermal runaway, while LFP batteries have limited driving ranges.
“This 10-year cobalt supply agreement reflects a deepening of the strategic cooperation between cobalt resources and the market in the face of the changing competitive landscape and the booming trend of new energy in the world, and will fundamentally stabilize the development of GEM cobalt products. There is a huge demand for cobalt resources in the global market,” Xu added.
“Long term security of cobalt supply and cobalt demand visibility are critical to prevent supply shortages that could impede the energy transition and, ultimately, the world’s ability to meet climate change targets,” Nico Paraskevas, Glencore’s head of marketing, copper and cobalt, added.
Glencore’s Katanga mine in the Democratic Republic of Congo is ramping up to 29,000 tonnes per year cobalt output (contained in hydroxide) this year.
The company put its 25,000 tpy Mutanda mine, also in the DRC, on care and maintenance for at least two years in late 2019 due to low cobalt prices.
The updated agreement between the companies has also been adjusted to incorporate sourcing and sustainability standards, including annual audits for both parties under OECD-aligned standards, specifically, the Cobalt Refiner Supply Chain Due Diligence Standard developed by the Responsible Minerals Initiative (RMI), Responsible Cobalt Initiative (RCI) and Chinese Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters (CCCMC).
The Glencore-GEM deal also includes a commitment to use the Cobalt Industry Responsible Assessment Framework (CIRAF) - a risk management tool that helps cobalt supply chain players identify production and sourcing related risks - when communicating publicly on environmental and social issues specific to the cobalt supply chain.
(This story was updated on December 4 to include the yearly breakdown of the purchase plan between two parties officially announced by GEM on December 4.)