Battery recycler GEM locks in cobalt supply amid soaring prices

Chinese companies are racing to secure cobalt supplies as the chemical's price soars, driven by fast-increasing demand from the electric vehicle battery manufacturing industry.

Shenzhen-based battery recycler and battery chemical supplier GEM Co Ltd, together with several subsidiaries, has made a massive strategic purchase agreement with cobalt giant Glencore Plc, locking about one third of the latter's yearly cobalt production throughout the next three years.

According to the Chinese firm's filing released Wednesday, GEM and its subsidiaries will buy 13,800 metric tons of cobalt contained in hydroxide from Glencore in 2018. The purchases will rise to 18,000 tons in 2019, and 21,000 tons in 2020.

The numbers represent about 35 percent of Glencore's planned cobalt output this year, 28 percent the next year and 33 percent in 2020, Bloomberg reported.

The pricing details were not made public in GEM's filing. Bloomberg reported that with an almost fourfold jump in cobalt prices in the past two years, Glencore Chief Executive Officer Ivan Glasenberg said the company would only sell on a floating-price basis that allows it to benefit from further gains.

In China, the price of cobalt has increased 31.63 percent since December 2017, from 490,000 yuan ($76,971) per ton to 645,000 yuan per ton, according to commodity data supplier 100ppi.com.

"The cobalt demand will be mostly from the electric vehicle battery manufacturing industry in the future," Chen Jianwen, an analyst with Pingan Securities, said in a recently released report.

Since 2006, the battery industry has become the largest user of cobalt, driven by the rapid increase from cobalt-based lithium batteries for electric vehicles, Chen said in the report.

Chen predicted in the report that as the electric vehicle industry prospers, in China, demand for cobalt in power batteries will increase from 5,865 tons in 2017 to 58,800 tons in 2025; globally, the demand will increase from 9,200 tons in 2017 to 102,100 tons in 2025.

Chen further predicted that the overall cobalt demand in 2025 will be around 115,600 tons in China, and 248,900 tons worldwide.

In response to the cobalt demand increase, quite a few Chinese companies have already invested generously in cobalt mining and processing.

On March 13, Zhejiang-based mining firm Huayou Cobalt Co Ltd announced it planned to invest 6.37 billion yuan in a lithium battery and new material project.

In December, a wholly owned subsidiary of Huayou Cobalt made an about 50-million-yuan strategic investment in Australia-listed Nzuri Copper, becoming Nzuri Copper's second largest shareholder, eyeing the company's copper and cobalt projects in the Democratic Republic of Congo.

In November 2016, China Molybdenum Co Ltd, listed both in Shanghai and Hong Kong, announced a wholly owned subsidiary had acquired a 56 percent indirect share in the Tenke Fungurume Mining SA, which has the world's leading copper-cobalt mine in the Democratic Republic of Congo.

However, answering an inquiry from the Shanghai Stock Exchange, Hauyou Cobalt said in a filing that if the price of cobalt remains high or continues growing, downstream companies may turn to other low-cost power batteries, and as technology develops, cobalt-based battery power may be replaced by alternatives.