Cobalt: Umicore expands footprint in the European EV market with Kokkola deal confirmed

Freeport-McMoRan and Umicore have confirmed the ownership change of the Kokkola refinery in Finland. A total of approximately US$150M plus working capital at the time of close is pending to be paid by Umicore, which is aiming to finalise the deal by the year-end of 2019.

Announcements from both parties state that Umicore will acquire and operate cobalt refining and LIB cathode precursor activities from Freeport, leaving the rest to be operated by Freeport as before. Thus, Freeport Cobalt will continue to produce cobalt fine powder, chemicals, catalysts, ceramics and pigments at Kokkola. The acquired refining and cathode precursor business accounts for around 60% of Kokkola’s historical revenues and will serve as the supplier for Umicore’s new cathode plant in Nysa, Poland, which is due to be commissioned in H2 2020.

According to the announcement, the Kokkola refinery will be supplied with ethically mined and sourced cobalt raw materials through Umicore’s multi-year purchase agreements with international miners whose mining practices are compliant to the requirements from downstream clients. Last week, Glencore announced a “long-term” deal to supply cobalt to Umicore.

Roskill view

Roskill estimates that approximately 75kt of cobalt, in the form of sulphate and tetroxide (the critical precursor chemicals for LIB cathode production) was produced in 2018. Only around 10% of the total output comes from European cobalt refiners, namely the Kokkola and Nornickel Harjavalta plants, with the remainder all produced by China. As the second-largest cobalt refinery in the world and the largest in Europe, Kokkola produced approximately 12kt of refined cobalt from a refining capacity of 15ktpy, with the majority being cobalt powder and tetroxide.

The takeover of Kokkola, the largest cobalt refining operation outside China, has again put Umicore in the spotlight after the company lowered guidance for its 2019 financial performance in April amid increasing competition and softening demand in the Asian cathode market. Before the acquisition, Freeport Cobalt had supplied tetroxide to Umicore’s cathode operation in South Korea. In China, Umicore feeds its cathode plant through its own refining facilities, whilst in Europe, the company has only a small amount of cobalt refining capacity in Olen which is highly unlikely to keep up with its cathode expansion plan going forward. To that end, this acquisition makes Umicore better positioned as an integrated supplier for the EV battery industry both in Europe and globally.

With China dominating LIB cathode consumption and manufacturing, there have been close linkages between cobalt refining and cathode production activities, especially when cathode manufacturers are becoming more backward integrated (i.e. Xiamen Tungsten became the second-largest shareholder of Ganzhou Tengyuan) and cobalt refiners are more forward integrated (i.e. Huayou Cobalt to acquire Tianjin B&M). Unlike the picture in China, Europe has been playing catch-up in both cathode manufacturing and cobalt refining, with only a few cathode plant construction plans announced last year and limited numbers of cobalt refining facilities available. With Nornickel’s Finnish cobalt going to BASF’s new cathode plant, and Kokkola feeding Umicore’s Polish plant, eyes are now on the raw material source of Johnson Matthey’s new cathode plant in Poland.

The takeover also suggests, to some extent, that the long-term outlook for cobalt remains strong, despite the cobalt price bottoming out amid short-term weakening demand and negativity around the new Chinese EV subsidy policy favouring nickel-rich chemistries in LIB announced in March.

Roskill’s NEW Cobalt: Global Industry, Markets & Outlook report will be published in July 2019 and provides data on global cobalt refined production and emerging industry trends. Click here to download the brochure and sample pages or to access further information.