Cobalt is like gold, but demands a sustainable global approach
Cobalt is an important component of the batteries that will drive
electric cars in the future. There is currently a fierce struggle for
access to cobalt, both economically and politically. This fight leads
to abuse and risks slowing down environmentally friendly developments.
Cobalt trade needs a sustainable global approach that will benefit the
global economy, our environment and all concerned.
According to the latest American research, the polar icecaps are
melting faster than previously thought. Water levels threaten to rise
more quickly as a result and Western European coastlines are in
danger. Perhaps this ominous message will be the distress call that
finally causes Europe to wake up. The uptake of green technological
solutions has been slow, despite the fine political words and
widespread good intentions. Greening Europe’s vehicle fleet is a key
element of this, given that cars account for a substantial proportion
of worldwide CO2 emissions (roughly a quarter according to the
International Energy Agency). Electric cars promise a great deal, but
better batteries are needed, posing a challenge in terms not only of
technological development, but also of the raw materials these
batteries require. Cobalt plays a vital role but is unfortunately in
short supply. It is only found in a few locations around the planet
and is, moreover, controlled by a limited number of players.
Scarcity as an economic law
Scarcity is one of the most important economic principles. When something is scarce, economists call for it to be used with maximum efficiency. Optimum deployment of factors of production like labour and capital maximise output and prosperity in our economy. Markets ensure a balance between supply and demand and correct price-setting. At least they do when they are genuinely free.
In cobalt’s case there is an issue in this regard on both the demand and the supply side. Global stocks of cobalt are in the hands of a few countries and are effectively controlled by a limited number of companies. What’s more, it is not being extracted efficiently. Mines in developing countries in particular struggle to meet their production targets. This situation threatens to cause problems. On the one hand, suppliers are in a strong position to drive up the price, while on the other, selective access to the necessary cobalt creates positions of power throughout the economic network centring on the mineral’s extraction and processing.
These supply-side difficulties are paralleled by sharply increasing
demand, with the automotive industry in particular firmly backing the
move towards electric cars. Even before vehicles like this make their
real breakthrough, many car makers have been attempting to secure
access to cobalt via long-term contracts. After all, without cobalt,
the future production of electric cars is jeopardised. Scope for
hedging on the financial market against fluctuations in the cobalt
price are, moreover, limited.
And scarcity does indeed have a price: cobalt prices have been rising in recent years and actually doubled in 2017 alone. The price of cobalt is partially influenced by the market performance of other metals, as cobalt is often a by-product of copper and nickel mining. Consequently, its market price depends on trends in the extraction of those two metals.
We also detect a considerable degree of volatility, indicative of
speculation. In addition to demand from industry, it is clear that a
lot of players are active in the market for purely financial reasons.
Everyone seems convinced right now that there is a structural problem
with supply and that demand for cobalt can only increase.
Cobalt is only available from a few locations in the world. The biggest stocks are found, however, in a single country, namely Congo (see figure). History teaches that Congo’s wealth of natural resources has already sparked a number of bloody conflicts. Cobalt is the object not only of a domestic power struggle but also of international tussling for access to strategic raw materials. China, for instance, has been actively involved in the continent of Africa over the past decade with a view to securing its access to energy and raw materials. The Congo (extraction)–China (refining) axis is crucial right now to the worldwide cobalt trade, which risks clashing with historical economic interests in the region. What seems at first sight like a metaphorical goldmine for Congolese society threatens to become the stakes in a ruthless international power struggle.
Figure - Worldwide production and estimated reserves of cobalt (in % of the total)
Source: USGS Mineral Resources Program (2018)
Unfortunately, the weakened Congolese government is not in a position
to apply the same strategy as other commodity-rich nations. Countries
like Russia, China and Argentina use export restrictions to defend
their strategic reserves of commodities such as uranium, chromium,
graphite and hence also cobalt. It seems unlikely, therefore, that
ordinary Congolese people will benefit from their country’s rich
cobalt stocks, the benefits of which will flow instead to
international investors and the like. Worse still, there is ample
evidence that exploitation and child labour are firmly embedded in
Cobalt: what’s next?
Intensifying demand for cobalt for industrial use is also attracting some positive reactions. There is growing attention, for instance for the recycling of cobalt from old mobile phones. ‘Urban mining’ techniques are being applied to recycle the commodity. Recycling is in full swing, which many analysts believe could even exert downward pressure on the cobalt price. This will certainly be the case in the longer term, as electric cars too begin to be recycled. A fine example of the circular economy might well arise in this respect.
The present scarcity is also driving a quest for alternative technologies. The cobalt shortage is underpinning an ongoing process of innovation. Cobalt-free batteries appear technologically difficult in the short term, but in the longer run, possible alternatives will be developed, which could fundamentally alter the market once again. Many countries (the EU, US and China among them) have put research into new battery technology at the top of their strategic research agenda.
The current difficult market conditions, strategic power plays (and
possible abuses) and uncertainty about the future highlight the need
for an international, sustainable approach based not only on an
economic but also an ecological and humanitarian perspective. An
approach of this kind could help in the breakthrough of
environmentally friendly technology. It would also ensure the
stability of industrial production as we wait for alternative battery
technologies to emerge, not to mention considerably reducing the scope
for abuses. There is a shared responsibility here for international
institutions, policy-makers and the business world. Cobalt may be
worth (more than) its weight in gold, but the whole world ought to
benefit from its riches.