Tuesday, February 13, 2018

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

From the Wall Street Journal, Feb 11:
Companies from China now dominate the lithium-ion battery production process, which starts in Congo and ends up in a phone or electric car. Says one executive: ‘We’re realizing that the Congo is to [electric vehicles] what Saudi Arabia is to the internal combustion engine.’
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.

China is by far the biggest consumer of cobalt from Congo, the world’s biggest producer. Chinese refiners import about 94% of their cobalt from the West African nation, according to Darton Commodities.

“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.”

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.

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.

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.
“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.
Much of the remaining 30,000 tons to 40,000 tons of Congolese cobalt comes from freelancers known as creuseurs, the French word for diggers, or Chinese companies such as China Molybdenum Co. and Zhejiang Huayou Cobalt Co. and small industrial producers, according to traders.

Freelancers 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. Industry researcher Darton Commodities estimates they 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, according to human-rights group Amnesty International and other people familiar with Congo’s cobalt market.

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
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.

China Molybdenum in 2016 agreed to purchase a giant copper and cobalt mine in Congo from U.S. mining giant Freeport-McMoRan Inc. The mine supplies a Freeport facility in Finland that produces about 20% of the processed cobalt sulfate used to make batteries. Analysts say the rest of global cobalt sulfate production is done in China....MUCH MORE