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China pulls ahead in race to secure cobalt

Glencore deal a boon to the country's electric vehicle ambitions

Creuseurs, or diggers, toss sacks of rocks at a copper and cobalt mine in Kawama, Congo, which produces 65% of the world's cobalt, used in batteries for electronics and, increasingly, automobiles.   © Getty Images

LAUSANNE, Switzerland -- The race is on for future supplies of cobalt, a metal that is indispensable in the making of electric vehicle batteries.

While automakers and other big cobalt users are trying to strike deals directly with mining companies, China looks like it is trying to corner the global cobalt market.

In March, a Chinese company signed a long-term agreement to buy large amounts of cobalt from Glencore, the world's leading producer of the metal.

"If cobalt falls into the hands of the Chinese, yeah you won't see EVs being produced in Europe, etc.," Glencore Chief Executive Ivan Glasenberg warned on March 20 at the FT Commodities Global Summit.

Prices of cobalt have climbed 50% during the past year to around $42 a pound, triple what they were three years ago.

Global demand for cobalt is bound to further swell as the global auto industry gears up to produce more electric vehicles. And one country, Congo, produces about 65% of the world's cobalt.

With the appetite for cobalt growing, children are being put to work in dangerous mines in Congo, a situation that has drawn international attention.

Large consumers like Apple  and BMW have started making efforts to purchase cobalt directly from mining companies to ensure that the metal in batteries they make or supply is not mined by children.

Against this backdrop, Glencore's long-term supply agreement with Chinese battery recycler GEM has caused an international stir.

Glencore CEO Ivan Glasenberg says Europe could have trouble producing electric vehicles if China corners the cobalt market.

Under the deal, Glencore will sell about 53,000 tons of cobalt to GEM from this year through 2020. The figure is expected to represent around a third of Glencore's cobalt production during the three years.

China has failed to nurture an internationally competitive auto industry because its internal-combustion engines are inferior to those made in Japan and Germany. China is now trying to accelerate a shift to electric vehicles.

China sees this shift as an opportunity to establish technological leadership in the global auto sector.

GEM's deal with Glencore is a strategic move toward this end.

Elsewhere, a Canadian startup is emerging as a powerful player in the cobalt market. Cobalt 27 Capital, which made its stock market debut in Canada less than a year ago, invests in cobalt by providing funds to mining companies to help them develop mines. In return, it receives rights to buy a certain portion of the mine's output at a set price. The company earns profits by then selling the metal on the spot market at a markup.

This is known as streaming. For mining companies, it has the advantage of allowing them to obtain necessary funds at lower costs than, say, bank loans. The formula also enables investors to cash in on rising cobalt prices without incurring the costs of operating mines.

After a series of large purchases amounting to several hundreds of tons, Cobalt 27 now owns nearly 3,000 tons of physical cobalt.

Anthony Milewski, chairman and CEO of the company, has told Nikkei that the ratio of electric vehicles to all new cars sold will rise sharply 10 to 15 years from now, at a much faster clip than generally expected. Demand for cobalt a decade from now will be two or three times what it is today, he predicts.

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