The price of cobalt, a key material for lithium-ion batteries, could skyrocket after the output from a major mining project was halted this week.
The mining giant Glencore said the export and sale of cobalt from the Kamoto project in the Democratic Republic of Congo (DRC), owned by Glencore’s subsidiary Katanga Mining, would be suspended until further notice after the metal was found to be contaminated with uranium.
The radiation levels in the cobalt hydroxide produced at Kamoto are not high enough to pose a health hazard but do exceed the limit allowed for exports.
Analysts expect the setback to reverse a downward trend in global cobalt pricing, as Katanga was in the process of ramping up to become the biggest cobalt-producing asset in the world.
Katanga’s operations were put on hold in 2015, to build a whole-ore leaching facility, but production restarted in March this year. Since then, Katanga has produced 6.5 kilotons of cobalt and production had been expected to top 11 kilotons by the end of the year.
Annual production was anticipated to rise to 34 kilotons of cobalt next year, equivalent to 21 percent of Wood Mackenzie’s base-case mine supply forecast for 2019.
“Katanga was the great savior to meet burgeoning demand from the EV battery sector,” said Wood Mackenzie research director Gavin Montgomery and analyst Milan Thakor in a note.
Although cobalt cannot be shipped from Kamoto, production “is expected to continue without reduction in the quantity produced,” said Katanga in a press note.
The company is carrying out surveys to identify the source of the uranium and exploring options to mitigate the impact of the sales suspension, it said. Katanga also said it was planning to build a $25 million ion exchange system to remove the uranium from the cobalt.
The ion exchange system is expected to be commissioned by the end of the second quarter of 2019, “subject to obtaining the necessary approvals,” Katanga said.
In the meantime, cobalt will be stored on site. Once the ion exchange system is commissioned, the processing and sale of the cobalt stored on site is expected to be completed before the end of the fourth quarter of 2019, said Katanga.
“The installation of an ion exchange system should not be particularly challenging on a technical level,” commented Montgomery and Thakor.
“However, given the location in the DRC, permitting, approvals and importing equipment could all increase the risk of delays to the current seven-month timeline.”
Regardless of any delays, the existing suspension timescale will significantly tighten the market for cobalt intermediates over the near term, they said.
Other mining companies are expected to cover some of the shortfall, with ERG’s Metalkol project expected to add 14 kilotons a year of cobalt to the market and Pengxin Mining’s Shituru mine adding a further 3 kilotons per year.
But both of these will take some time to ramp up, Montgomery and Thakor observed. In the meantime, the analyst team predicts there will be a shortage of cobalt and a reversal in recent price reductions in the metal. Reuters said cobalt prices had fallen almost 40 percent in 2018.
“Earlier this year, when cobalt prices were trading over $90,000 per ton, payables for cobalt hydroxide were being negotiated at over 90 percent,” said Montgomery and Thakor. “As reference metal prices have fallen over the course of the year, so too have payables, to the low 80s by July and down to mid-60s at present. This trend is likely to reverse sharply as those caught short by Glencore’s suspension rush to lock in feedstock supply into 2019.”
Refineries are likely to try to pass on the costs to customers, they said. Meanwhile, a tighter supply of intermediates could limit the output of cut cathodes produced by Chinese companies such as Jinchuan Group and Jiangsu Cobalt Nickel Metal Co., they noted.
This week’s events will likely serve as a warning of the extreme volatility facing the lithium-ion battery market. Last year, news of Katanga coming online sparked fears that the cobalt market, currently amounting to around 120 kilotons a year, would be flooded.
“The importance of Katanga to the cobalt story cannot be overstated,” said Montgomery and Thakor.
“Just as the company’s guidance issued late last year quickly cast a cloud of oversupply over the medium term, so has this latest news suddenly created the threat of near-term tightness.”