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Business trends

Japanese cobalt traders find there is none left to buy

Output struggles to keep up with demand for key electric car component

A worker at a cobalt mine in the Democratic Republic of Congo's Katanga Province. Harsh working conditions in the mines have drawn criticism from international human rights groups.   © Reuters

TOKYO -- Prices of cobalt roughly doubled in 2017 as automakers scrambled to secure the silvery element, which is used in batteries that power emission-free vehicles. The global shortage is hitting Japanese traders of the metal.

One Tokyo trading company is feeling the heat. When it sought to purchase cobalt on short-term contracts in early December, the response from suppliers in China and Western countries was the same: Their stock for 2017 had already run out.

"I've never heard them say they can't give us anything [before]," said the company's purchasing manager.

The supply squeeze has become so severe that it could slow the spread of electric cars.

Problems in producing countries, including methods of production that have drawn international criticism, are causing bottlenecks in output. The Democratic Republic of Congo, which accounts for more than half of global supply, is considering raising royalties on cobalt by more than 100%, according to recent reports.

"A car maker will be looking to secure maybe 7 years worth of raw materials to continue support and launch EVs," Tony Southgate of Eurasian Resources Group told the Financial Times Commodities Tokyo Summit in December.

Automakers are taking matters into their own hands. Germany's Volkswagen reportedly tendered bids for long-term supply contracts with mining companies.

Cobalt usually comes as a byproduct of copper and nickel mining, which makes it difficult to raise output quickly in response to growing demand, according to George Heppel of CRU, a London consultancy. When output of these metals falls in response to weaker prices, cobalt output drops in tandem. Heppel predicts supplies may again tighten further, starting around 2022 to 2023.

Prices for cobalt have doubled in the past year as automakers scramble to secure the essential component for electric vehicles.

Cobalt is used in the cathodes of lithium-ion batteries found in electric vehicles. According to the U.S. Geological Survey, global cobalt ore output totaled 123,000 tons in 2016, an increase of 80% from 10 years earlier. However, production has been flat during the past few years.

Benchmark spot prices on the London market have risen above $35 per pound, more than three times the level of two years ago. With cobalt accounting for 10-20% of the cost of li-ion batteries according to some estimates, soaring prices could well dent global production of electric cars.

Another trading company purchasing manager attributed the price surge to speculative buying.

Global cobalt bullion demand was 96,000 tons in 2016, versus a total supply of 95,500 tons, according to estimates from a research company. Industry sources say current stocks worldwide total about 30,000 tons.

Toyota Motor and Panasonic in December announced plans to jointly develop batteries mainly for use in electric vehicles. The typical electric car uses about 10kg of cobalt, although the amount differs depending on the model, according to a person at a Japanese battery component maker. Tokyo market researcher Fuji Keizai estimates there will be 1.52 million electric cars on the road worldwide in 2021.

Li-ion batteries that are used in electric vehicles and home electronics make up about a half of total cobalt demand. Fuji Keizai estimates that demand for cobalt used in these batteries will rise to 75,000 tons by 2021, up from 45,900 tons in 2016.

Supply, meanwhile, is forecast to reach about 130,000 tons by 2021. If growth in the electric vehicle market maintains its current pace, shortages may become chronic.

Child miners

Another risk to the global cobalt supply is the fact that production is fairly concentrated, with the Democratic Republic of Congo the dominant player. Other producers, including Canada and China, account for less than 10% each of global production.

It has become increasingly difficult for customers to demand higher production from Congolese mines, which have drawn condemnation for their use of child labor, particularly after Amnesty International, the human rights advocacy group, brought attention to the practice.

"Businesses must closely monitor the supply chain for cobalt," said Shigeru Tanaka, who heads administration for the Pacific Asia Resource Center, a Tokyo-based nongovernmental organization.

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