South-Korean battery manufacturer SK Innovation has signed a six-year purchase deal with cobalt producer Glencore for approximately 30kt of cobalt-in-hydroxide between 2020 and 2025. The cobalt will be used in the production of lithium-ion batteries that could power an estimated three million electric vehicles (EVs). Cobalt under the agreement will be sourced from Glencore’s industrial mining operations in the DRC which will be independently audited each year in line with the “Cobalt Refinery Supply Chain Due Diligence Standard” as defined by the Responsible Mining Initiative.
This deal secures a significant amount of cobalt feedstock for SK Innovation, which currently owns an estimated battery production capacity of nearly 10GWh in Seosan, Korea. As a latecomer to the EV battery sector, the company has made aggressive investments globally (in China, the USA and Hungary), targeting a total capacity of 100GWh by 2025. Downstream, SK Innovation has also secured orders from automakers including German Volkswagen and Daimler, Korean Hyundai and Kia, and supercar brand Ferrari; it expects to supply nickel-rich batteries to these clients.
Following two long-term supply contracts signed with Belgian cobalt recycler and refiner Umicore and its Chinese rival GEM earlier this year, this deal reveals another long-term client for Glencore’s cobalt production. In a recent call with investors, Glencore also mentioned the ongoing contract negotiation with BMW, reflecting a trend that more downstream players in the EV value chain are keen to secure long-term supply of cobalt, a crucial element for EV mass production.
In the past 12 months, owing to improved availability of cobalt hydroxide, spot trade of this material has become more popular as it provides refiners with more flexibility in terms of inventory control and cost reduction. Despite many refiners favouring spot purchases, Roskill believes large cobalt consumers, including those who supply automakers, will still opt for a long-term purchasing strategy as raw material security and sustainability remain the main concerns for end users.
Such partnerships between cobalt miners and downstream EV manufacturers also suggest that the long-term outlook for cobalt demand from the EV sector remains strong, despite some softness in the cobalt price amid short-term weakening of demand and negativity around the recent Chinese EV subsidy cut.
Roskill’s Cobalt: Outlook to 2029 report was published in August 2019. Click here to download the brochure and sample pages for the report, or to access further information.