• 4 minutes WTI Heading for $60
  • 6 minutes OPEC Builds Case For Oil Supply Cut
  • 15 minutes Major News---Bigger Picture
  • 30 mins Starbucks slashing its corporate workforce
  • 24 hours Can U.S. Add "Another Russia" to Oil Supply?
  • 33 mins what's up with NG?
  • 19 hours A Strong U.S. Economy Will Boost Global Growth in 2019
  • 1 hour Here We Go Again: EU Will Hit Back If U.S. Imposes Car Tariffs
  • 13 hours Solid-State Batteries At Least a Decade Away From Mass Adoption
  • 44 mins Could EVs Become Cheaper than ICE Cars by 2023?
  • 2 hours Plastic Myth-Busters
  • 16 hours Pros and Cons of Coal
  • 2 hours Zohr Giant Gas Field Increases Production Six-Fold
  • 1 day Germany: 'Europe United' Must Be Answer To Trump's 'America First'
  • 1 day GM Says No To Electric Pickup Trucks For 'Decades'
  • 2 hours Soybean sale to China down 94%
  • 2 days Big Brother Is Watching You: Chinese ‘Gait Recognition’ Tech IDs People By How They Walk
Global Risk Insights

Global Risk Insights

GlobalRiskInsights.com provides the web’s best political risk analysis for businesses and investors. Our contributors are some of the brightest minds in economics, politics, finance, and…

More Info

Trending Discussions

The Achilles’ Heel Of Electric Vehicles

Cobalt’s essential role in lithium-ion batteries has and will continue to make it increasingly important for the global consumer economy. Cobalt serves as a key component in battery-based devices by allowing them to operate over longer periods without overheating. With the global transition to electric vehicles (EVs), corporations are increasingly forced to rely on cobalt from the Democratic Republic of the Congo (DRC), where a culture of corruption, unscrupulous mining practices, and political instability threaten supply security.

The Electric Vehicle revolution and rising demand for cobalt

EVs are still in their infancy, but many governments and corporations are committed to a green automotive future. While Washington has currently abdicated global leadership in promoting EVs, China has embraced the transition, with 777,000 EVs sold in country last year—approximately half of the global total—and this is set to triple by 2025. China is not the only nation planning rapid EV expansion. In July 2017, Great Britain announced a ban on the sale of diesel and petrol cars by 2040, and other nations have proposed similar targets, following the 2015 Paris Climate Agreement. In the private sector, automakers have announced large-scale plans to electrify their fleet of vehicles. For example, Volkswagen aims for a quarter of its vehicle production to be electric by 2025. The growth of electric vehicles and renewable energy technologies—the largest energy shift in a century–could depend largely on the availability and cost to produce and refine cobalt.

As the number of EVs increases from 2 million on the road now to 118 million by 2030,Bloomberg’s New Energy Finance (BNEF) division predicts demand for cobalt will soar to 156 kilotons while Darton Commodities predicts demand to reach 357kt per year by 2030 if there is no breakthrough in battery technology. With current battery technology each EV battery requires 18 pounds of cobalt—over 1,000 times the quarter-ounce used in smartphones. To meet this rising demand for cobalt, companies are forced to turn to the DRC because, according to Casper Rawles, an analyst at Benchmark Mineral Intelligence, “Without the DRC, this ramp-up in EVs won’t happen.”

(Click to enlarge)

Supply concerns with DRC cobalt

There are significant concerns about cobalt supply availability. According to McKinsey, total global cobalt supply in 2017 was approximately 127-140 kt. The DRC accounted for almost 70% of this output, and within the decade this will likely grow to 75%. Of this output from the DRC, 20% is produced by “artisanal” cobalt mines that often engage in unscrupulous mining practices, such as child labour. Russia, Australia, Canada, and Cuba—the next largest suppliers—account for only 13% collectively, and currently all mine capacity expansion projects outside of Africa are in early stages.

(Click to enlarge)

In order to prevent a supply crunch and price spikes in cobalt, major investment in expanding cobalt supply capacity is required. By 2025, an additional 110-120 kt of cobalt capacity will be added to global supply—bringing a total potential supply to 225-235 kt—and of the new capacity added, 40-45 kt will come from two projects in the DRC. Glencore’s Katanga Mining and Gecamines expansion project could add 30 kt of cobalt by 2019, and the Metalkol Roan Tailings Reclamation Project from the Eurasian Resources Group could add 14 kt of cobalt supply by 2020. The DRC is and will continue to be the linchpin of global cobalt supply.

(Click to enlarge)

Despite the upcoming mining expansion projects, there is significant uncertainty surrounding cobalt supply. According to BNEF analysts, “The long lead time to bring on new mines and the concentration of cobalt reserves in the Democratic Republic of the Congo mean there is a real possibility of supply shocks in the early 2020s.” Another key issue is that 90% of mine supply is produced as a by-product of copper (55%) and nickel (35%) mines, leaving the key commodity dependent on nickel and copper market dynamics. If the DRC descends into political turmoil, continues to allow human rights violations, or its supply capacity does not grow as planned, there could be serious implications for the EV market.

Key political risks in the DRC’s cobalt industry

The DRC’s cobalt industry faces acute political risks, most notably changes in mining law and an upcoming presidential election, which have contributed to an aura of uncertainty in the nation. Related: Will U.S. Solar Survive The Trade War?

For the DRC, mining accounts for 80% of the central government’s earnings, and recently the government has revised laws to take greater advantage of the resource. In September 2018, President Kabila declared cobalt was a “strategic mineral” and increased royalties to the government from 2% to 10%, which could raise the price of cobalt and EVs.

The precarious political balance created by Kabila over his 18-year reign since the First and Second Congo Wars (1996-1997, 1998-2003) could collapse with the upcoming presidential elections. Kabila, whose legal term ended in 2016, pledged that he would not stand for the elections in December 2018, and that his close political ally Emmanuel Ramazani Shadary will succeed him on the ballot. A rigged election or a radical political change through an opposition party victory could spark instability in the DRC, which according to Peter Deneen, a managing director at EV-Metals Resources Group, would disrupt exports and create supply constraints the market is unprepared for.

Supply chain risks

Corporations are confronted with a series of supply chain challenges in the DRC, most notably ethical concerns about mining practices. The DRC artisanal mines, which produce roughly 13% of total global cobalt supply, employ creuseurs, independent miners with little safety equipment, as young as 10. Many corporations, however, believe that ending all business with artisanal mines would devastate millions of people dependent on the work. For example, an Apple executive stated in an email, “There are real challenges with artisanal mining of cobalt in the Democratic Republic of Congo, but we believe deeply that walking away would do nothing to improve conditions for people or the environment.”

While corporations and the DRC government have taken steps since Amnesty International’s revolutionary 2016 report, it is virtually impossible to assure that child labour is not involved in the supply chain. Cobalt often passes through multiple companies and countries, and some industrial miners will supplement production withcreuseur-produced cobalt. The WSJ recently found that cobalt from the Mutoshi creuseur-worked mine found its way through multiple corporations to Apple and VW. This uncertainty could lead to a premium for certified cobalt or lower supply for end-use sectors that fear tarnishing their brands.

Possible technological solutions

In order to limit the risks involved in sourcing cobalt from the DRC, many companies are exploring alternatives, such as increasing battery recycling, decreasing the cobalt necessary, or developing new battery technology. While the majority of these projects will alleviate supply constraints, they will likely be unable to completely eliminate all risks.

In order to develop a cheaper, more efficient, and less risky alternative to mining cobalt, many scientists are attempting to improve battery-recycling technology. In 2017, 12-15 kt of cobalt was recovered from battery recycling, and it could provide 100 kt of cobalt annually by 2030. This recycled cobalt could be an essential source for easing supply constraints and preventing a future shortage.

(Click to enlarge)

Companies have been racing to develop ways to reduce cobalt use by substituting nickel.For example, China’s BYD Co. is developing batteries with a nickel-manganese-cobalt ratio of 8:1:1, which will be released by the end of 2018. BNEF predicts that low-cobalt nickel batteries will increase from 7% of EV batteries in 2020 to 57% of all EV batteries by 2030. Low cobalt batteries, however, hold a considerable fire risk due to the metal’s role as a stabilizing agent. Related: The Energy Investment Model With A Glaring Problem

Some companies are developing solid-state batteries to eliminate cobalt completely. For example, Volkswagen has partnered with QuantumScape, a California-based solid-state battery start-up, but development is a long and uncertain process. Speaking on this topic, VW’s research director Axel Heinrich said, “We are at a very early research stage. I cannot tell you which year we will have batteries with no cobalt.” According to the FT, solid-state batteries are predicted to enter the EV market in 2025 and by 2030 will be installed in the majority of EVs. Still, doubts remain about the viability of cobalt-free batteries.

Outlook

The scale and pace of the global transition to EVs will be largely dependent on the supply and demand dynamics of cobalt. If EV adoption is aggressive and there is a slowdown in bringing new cobalt supply sources online, there could be a shortage by 2022. Furthermore, increased DRC resource nationalism and a continued lack of transparency could add supply risks in this scenario. These factors would have immediate effects on the growth of EVs, but in the medium and long-term would likely prompt the market to develop new battery technologies, such as nickel and solid-state options. A greater setback would involve the DRC descending into political instability, which would require corporations to develop immediate strategies to mitigate the fallout from a substantial supply loss. While the supply-demand balance in tight, it is highly possible for a supply shock to be avoided, but this would need to involve continued stability in the DRC, new supply sources, reasonable demand, and improvements in battery technology.

By Global Risk Insights

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment
  • Haggy on November 08 2018 said:
    Both Tesla and Panasonic announced months ago that they are working on cobalt free batteries and that they expect to get cobalt content from 3% down to 0%.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News