Congolese war chokes cobalt supply for EVs

Cobalt accounts for 30 percent of the total cost of producing the batteries used in electric vehicles and its price has recently been on the rise.

Cobalt traded on the London Metal Exchange at about $32,750 a ton earlier this year, Bloomberg reported last week, and has gone up to $59,000 as of Monday.

According to the Korea Mineral Resources Information Service, there are 7 million tons of cobalt in the world and about 3.4 million tons are in the Democratic Republic of the Congo.

The Congo’s cobalt production dropped significantly starting last year. The price of cobalt remained low at $20,000 a ton then, so the country did not find it necessary to mine as much. Also, political instability due to an ongoing war limited supply and distribution.

Furthermore, cobalt has been designated a “conflict material” and faces tough trade regulations. The United States designated four mineral mines in the Congo and neighboring states as conflict-materials mines starting 2013 and restricted the trade of such metals. This is because armed forces in the region used such metals to fund their campaigns through forced labor.

The U.S. move not only regulates the companies listed on their stock markets but also suppliers from abroad that supply goods to U.S. firms. Some Korean companies face such regulations from the United States as well.

But demand for cobalt continues to soar, mainly due to China, the biggest consumer of the metal. Beijing plans to supply 5 million electric vehicles by 2020 to reduce its levels of fine dust emission.

The Chinese government plans to do so by giving subsidies to drivers who purchase environmentally friendly vehicles. Drivers can receive more subsidies if they purchase more battery efficient vehicles, so automakers are trying to buy cobalt to improve their batteries.

The United States also announced its plan to spend some 5 trillion won ($4.45 billion) by 2020 to help the electric vehicle market, and France and Japan are giving subsidies of about 10 million won per customer when buying such vehicles.

The Korean government also gives subsides of up to 14 million won per high-speed electric vehicle owner and regional governments also provide some financial benefits to drivers.

The Japan-based market research firm B3 said the market size of global electric vehicles will rise from 3 million units last year to 6.3 million units by 2020, largely thanks to the various policies announced by countries across the world. The market size of batteries used in electric vehicles is also expected to go up from $9.04 billion to 18.2 billion by 2020.

This suggests that cobalt prices will likely continue to go up. MacQuarie Research projected the unbalance in the supply of cobalt will worsen over the next five years or so and that it will be lower than demand by 5,340 tons in 2020 and 7,194 tons in 2021.

“One of the key factors that will have an impact on cobalt prices will be the presidential election scheduled later this year in the Congo,” said Park Kyung-duk, a senior researcher at Posco Research Institute. “The main factor will be whether the country elects someone through democratic means who will stabilize the country.”

The Congo is technically a democratic country but its president, Joseph Kabila, has been ruling for 17 years. His term ended last year but he remains in power. Starting last August, hundreds of people died and 1.3 million became refugees due to the ongoing civil war.

Moise Katumbi, an opposition party lawmaker, announced last month in Paris that he will run for president. The United Nations also requested the Congolese government allow Katumbi enter its country and run for president, but the Congolese government has not officially responded.

Local battery manufacturers are also working to prepare for the shortage of cobalt.

“The hike in cobalt prices has been one of the most sensitive issues recently and our teams purchasing the metal are coming up with plans,” said a spokesman from Samsung SDI. “We currently think this will be a temporary factor and will try to solve the issue by diversifying cobalt sellers.”

A LG Chem representative added that it will not be hit hard by the hike in the prices right away but that it will be working on developing new technologies or business partners if the situation lasts for a longer period of time.

BY LEE SO-AH [kim.youngnam@joongang.co.kr]