Amid Soaring Cobalt Prices, Apple Will Buy Direct From Miners

One of the most underreported commodity stories of the past year has been the staggering climb in the price of cobalt - a metal that's an essential ingredient of everything from smartphones to electric cars, as BusinessWeek pointed out in a feature about the looming cobalt crisis published last month.

For example, both cobalt and lithium are key components of lithium-ion batteries used in smartphones. And as global demand for electric vehicles is expected to explode thanks to China's heavy handed inducements for urban car owners, cobalt traders have moved quickly to price this in.

According to Global Energy Metals, total global cobalt demand is on track to exceed 120,000 tonnes annually by 2020, up approximately 30% from the 93,950 tonnes consumed in 2016. The bulk of this is due to the lithium ion battery.

...And it has sent the spot price of cobalt traded on the London Metals Exchange to just shy of $80,000 per tonne, its highest level since the financial crisis. The price has more than tripled over the past 18 months.

Cobalt

And what we've witnessed so far is likely only beginning.

With electric vehicle sales "growing at double-digit compound growth rates and the costs of renewable energy continuing its deflationary cost crash, the raw materials critical for the lithium-ion battery are in the early stages of a growth cycle that may continue well into the next decade," Chris Berry, an advisor to Lithium Americas Corp., told MarketWatch recently.

Cobalt

So it shouldn't come as a surprise that Apple, the world's most valuable company, whose offering of consumer products represent one of the world's largest markets for cobalt, is in talks to purchase long-term supplies of cobalt directly from miners for the first time, according to a Bloomberg report.

Cobalt

The company is hoping to secure a sustainable supply of the metals as electric cars continue to consume a growing share of the global supply. Apparently, CEO Tim Cook can no longer stomach leaving such a crucial issue in the hands of Apple's suppliers, which have traditionally been responsible for securing supplies of cobalt.

The talks show that the tech giant is keen to ensure that cobalt supplies for its iPhone and iPad batteries are sufficient, with the rapid growth in battery demand for electric vehicles threatening to create a shortage of the raw material. About a quarter of global cobalt production is used in smartphones.

The iPhone maker is one of the world’s largest end users of cobalt for the batteries in its gadgets, but until now it has left the business of buying the metal to the companies that make its batteries.

The talks show that the tech giant is keen to ensure that cobalt supplies for its iPhone and iPad batteries are sufficient, with the rapid growth in battery demand for electric vehicles threatening to create a shortage of the raw material. About a quarter of global cobalt production is used in smartphones.

Apple is seeking contracts to secure several thousand metric tons of cobalt a year for five years or longer, according to one of the people, declining to be named as the discussions are confidential. Its first discussions on cobalt deals with miners were more than a year ago, and it may end up deciding not to go ahead with any deal, another person said.

An Apple spokesman declined to comment. Glencore Plc Chief Executive Officer Ivan Glasenberg late last year named Apple among several companies the miner was talking to about cobalt, without giving further details.

It wouldn't be much of an exaggeration to say that, in retrospect, miners might remember today's announcement as the start of the great cobalt scramble, as Apple competes with carmakers like BMW and Volkswagon (not to mention other smartphone manufacturers) to lock up a long-term supply of the metal. Of course, Apple isn't the first company to try and develop a direct relationship with miners.

Australian Mines Ltd., developing the Sconi mine in Queensland state, this week agreed a cobalt and nickel supply deal with SK Innovation Co., South Korea’s top oil refiner, that’s worth about A$5 billion ($3.9 billion) at current prices, the Perth-based company said Wednesday in a presentation.

SK Innovation, which plans to use the raw materials at an EV battery manufacturing plant in Hungary, agreed to buy all of the project’s planned output for up to 13 years, according to the filing.

BMW is also close to securing a 10-year supply deal, the carmaker’s head of procurement told German daily FAZ in early February.

Cobalt is an essential ingredient in lithium-ion batteries for smartphones. While those devices use about eight grams of refined cobalt, the battery for an electric car requires over 1,000 times more. Apple has around 1.3 billion existing devices, while Apple Chief Executive Officer Tim Cook has been bullish about the prospects for electric vehicles.

Another issue for companies like Apple that purport to be "socially responsible" (even as the company has proven over and over again that it will countenance a wide variety of labor abuses at its partners' factories, as long as they're happening far away from prying American eyes) is that the mining of cobalt is fraught with human rights abuses.  Two-thirds of supplies come from the Democratic Republic of Congo, where there has never been a peaceful transition of power and child labor is still used in parts of the mining industry.

In recent years, Apple has stepped up its engagement with cobalt suppliers after the origin of the metal in its supply chain came under scrutiny from human rights groups. In a report in early 2016, Amnesty International alleged that Apple and Samsung Electronics Co.’s Chinese suppliers were buying cobalt from mines that rely on child labor.

Last year, Apple published a list of the companies that supply the cobalt used in its batteries for the first time, and said it would not let cobalt from small-scale mines in Congo into its supply chain until it could verify that "appropriate protections" were being followed. However, if Apple were to break this promise, it wouldn't be the first time the company failed to follow through with its "commitment" to human rights.

We're now waiting to see if reports about Tesla, BMW and other automakers and smartphone makers seeking similar deals will follow accordingly - or if cobalt will be attract the kind of frenzied attention that bitcoin did last year when it's torrid rally started accelerating.