Glencore Inks 5 Year Cobalt Supply Deal with GEM

- October 7th, 2019

The deal will see the Swiss trader provide GEM with at least 61,200 tonnes of cobalt between 2020 and 2024. 

Mining giant Glencore (LSE:GLEN,OTC Pink:GLCNF) has signed a new cobalt supply deal with Chinese battery materials maker GEM (SZSE:002340).

The Swiss trader will provide GEM with at least 61,200 tonnes of cobalt from 2020 to 2024. “This long term partnership provides Glencore with a stable outlet for a significant portion of its expected future cobalt hydroxide production,” said Nico Paraskevas, Glencore’s head of marketing, copper and cobalt.

Benchmark Mineral Intelligence estimates that the deal is for about 25 percent of Glencore’s forecasted cobalt hydroxide production during the agreed-upon period — locking up a significant portion of “sustainable” or traceable cobalt not associated with artisanal or illegal sources in the Democratic Republic of Congo (DRC).

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Last year, the Swiss trader signed an initial agreement with GEM for 52,800 tonnes of cobalt contained in hydroxide over a period of three years. But the Chinese company stopped buying cobalt from Glencore when prices fell below the agreed-upon level.

Up until August, the price of cobalt had declined more than 40 percent in 2019 due to a surge in supply in the DRC. Prices rebounded after Glencore announced plans to shut down its Mutanda mine in the country at the end of the year.

Mutanda is the world’s largest cobalt mine, with cobalt output reaching more than 27,000 tonnes last year — a fifth of global cobalt supply. The closure news has shifted the market toward structural undersupply by as early as 2020, three years sooner than expected, according to Benchmark Mineral Intelligence analysts.

Cobalt is a key element in the lithium-ion batteries used to power electric cars. The London-based firm expects cobalt demand to increase from 75,000 tonnes in 2019 to 152,000 tonnes in 2024, with a total market size of 213,000 tonnes.

“Doubts still remain over whether cobalt’s ex-Glencore supply base can or is willing to expand supply in time for 2021 onwards, especially considering how difficult the industry finds predicting the leading producer’s strategy,” Benchmark Mineral Intelligence added.

Earlier this year, Glencore signed a deal to supply cobalt to Belgian battery materials producer Umicore (OTC Pink:UMICF,EBR:UMI), which said Glencore’s output meets its responsible sourcing standards.

“This means over 50 percent of Glencore’s cobalt production is tied up in long term contracts with two major customers,” Benchmark Mineral Intelligence analysts estimate. Glencore’s output is expected to account for 31 percent of total cobalt supply in 2019.

“There is little doubt that in times of a tight market, Glencore will look more favourable towards long term contracted customers than the smaller volume spot market,” the analysts added.

On Monday (October 7), shares of Glencore closed down 0.73 percent in London at GBX 225. The company’s share price is down more than 19 percent year-to-date.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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