Glencore trader Brocas says OEMs seeking 5-10 year deals for cobalt for EVs

Glencore, the biggest global cobalt producer, is trying to mitigate the risk of any big rally in prices or scarcity of supply caused by energy transition demand by discussing and entering long-term supply arrangements with OEMs, David Brocas, the company's lead trader of the minor metal, said Sept. 30.

"Only if we get very long-term visibility on [customers'] needs for cobalt will we be able to dimension our production in the right way," Brocas told the virtual FT Commodities Global Summit. "We in the mining industry need to know as the lead time for investment into a new mining asset is two-three years and we won't invest ... millions of dollars in challenging places like [the Democratic Republic of Congo] if we don't have a guaranteed outlet," he said, noting that the cobalt market is currently oversupplied.

In the past, the longest cobalt supply contracts were for one year, but this is rapidly changing because Glencore is pushing for it, said Broca, also chairman of the Cobalt Institute.

"Now some [original equipment manufacturers] are interested in securing material from us for up to five-10 years and that's a key to fighting climate change," he said. "Miners and consumers need to develop a sense of collective responsibility: it's a difficult commercial relationship because we have to agree on pricing. But we need to put that aside without losing sight of what the goal is – to ensure the energy transition."

"We assume that market penetration of [electric vehicles] by 2025 will be 10% but it could be more," said Brocas. "If that happens it becomes more crucial to make sure that EV market penetration is not limited by raw material access."

Glencore was reported in June to be negotiating a five-year contract for cobalt supplies to EV producer Tesla.

Cobalt prices in 2017 more than doubled to $75,250/mt as interest in EVs took off, amid sourcing and environmental, social and governance concerns as more than 60% of global cobalt is sourced from the DRC, where Glencore is a major producer along with some Chinese miners. Prices have since stabilized at a lower level: The London Metal Exchange cash price at $33,945/mt on Sept. 29 is up from January's average of $31,875/mt.

Cobalt is considered an essential component of EV batteries, even despite moves by some vehicle and battery manufacturers - including most recently Tesla – to reduce their dependence on the metal in battery manufacture through the use of alternative materials.

While battery production is currently controlled by a few large producers, with more investment battery unit costs can be expected to fall, Broca said. However, affordability is not the only factor to consider, he said. Cobalt is located in challenging places and may be costly to produce, but if the cobalt content in a battery is lowered then this may also lower the life of a battery and a car, which is incompatible with energy transition goals, he explained. "The energy transition cannot happen at the expense of the environment, he said. "We're trying to promote the concept of durability of EV batteries."

EV, battery metals demand seen rising fast

Electric car sales in Europe have been racing ahead this year, surpassing China's, partly on supportive government incentives, FT metals and mining correspondent Henry Sanderson noted.

Paul Stevens, distinguished fellow, energy, environment and resources program at Chatham House, said he thought people were underestimating the speed at which new technology can come in.

Jacqui Murray, deputy challenge director of Innovate UK, a government agency, affirmed that government incentives are useful for early movers and can be expected to continue despite heavy UK government debt incurred during the coronavirus pandemic.

"When it happens it happens much faster than you expect because the switch is the consumer switch not the policy switch," Murray said. "Policy is the driver that gets us to this point. We're seeing a massive uplift in EV sales in Europe. In the UK, the Tesla Model 3 was the biggest seller in May and we should celebrate that, but against the backdrop of incredibly low numbers. It's still a very early market, a sensitive one, but I think it's going to come and come reasonably quickly."

The transition is not only about battery-powered passenger cars, Murray said, but also about the use of hydrogen-powered fuel cells which contain platinum, biofuels and other non-fossil fuel-based fuels for all transport methods and it is essential to ensure the sustainability of the whole transport chain.