Is the US cobalt problem its Achilles heel?

Cobalt is an essential mineral for the US economy and military. The element is needed for lithium-ion batteries in electric vehicles, superalloys in jet engines, and permanent magnets in advanced electronics. In the United States, batteries represent 52% of cobalt end uses and superalloys represent 31% of end uses. These cobalt applications are vital for energy technologies such as wind energy storage and defense equipment such as F-35 fighter jets.

Without cobalt, neither America’s clean energy revolution nor its high-tech military modernization is possible. But there is a problem: the United States is heavily dependent on cobalt supply chains controlled by foreign companies and countries, especially China. Consequently, the United States – and its economic and military future – are dangerously vulnerable to geopolitical and commercial risks in the cobalt supply chain.

The current cobalt supply chain

The cobalt market today largely depends on a single country: the Democratic Republic of Congo (DRC). The country has 46% (3.5 million metric tons) of the world’s known reserves of cobalt (7.6 million metric tons) – economically recoverable cobalt. In contrast, the United States has only 0.9% (69,000 metric tons) of the world’s cobalt reserves, mainly in Idaho, Minnesota and Alaska.

A caveat to the fact above is that the United States is sitting on a lot more cobalt. In 1959, Calera Mining Company estimated that the Blackbird mining district in Idaho’s cobalt belt had nearly 110,000 metric tons of cobalt reserves, making it the “largest known reserve of cobalt ore in high grade” in the world. Additionally, America has 1 million metric tons of potentially economically recoverable cobalt resources, primarily in northeast Minnesota.

At the moment, however, US cobalt is largely untapped. And even if the United States drew on the reserves, the DRC’s influence in the market would certainly not diminish. The DRC currently produces 71% of the world’s cobalt ore, while the United States produces only 0.4% at one mine, Eagle Mine in Michigan, which will cease production in 2026. However, later this month Here, Australian company Jervois will commission its Idaho cobalt mine and plans to produce 1,900 metric tons of cobalt per year.

On the other hand, despite producing only 1% of the world’s cobalt ore, China controls around 14% of the world’s cobalt ore production. Specifically, Chinese-backed companies own or have financial interests in fifteen of the DRC’s nineteen cobalt mines, granting China control of more than 50% of the DRC’s cobalt mining capacity. Therefore, China exerts a significant influence on the global supply of cobalt ore.

The refining process makes the cobalt supply chain more precarious. China refines 72% of the world’s cobalt, while the United States refines only 0%. In other words, the United States is 100% dependent on imports and secondary waste for its cobalt consumption.

As for these imports, even they are vulnerable. Most refined cobalt imports come from Norway (20%), Canada (16%), Japan (13%) and Finland (11%). However, as noted above, China dominates the mining supply sourced by refiners from these seemingly friendly countries. Thus, in practice, cobalt supply chains are still dependent on China and are subject to significant geopolitical risks.

The geopolitical risks of cobalt

Currently, cobalt supply chains face three major geopolitical risks.

First, China may restrict the global supply of cobalt. For example, in 2010 China reduced its export quota for rare earth elements, significantly increasing world prices. It also halted rare earth exports to Japan, hurting its technologically advanced economy.

China may also restrict exports of refined cobalt. When China restricted rare earth exports, economist Paul Krugman wrote: “[t]This incident shows a Chinese government that is dangerously easy to trigger, ready to wage economic warfare at the slightest provocation. Under Xi Jinping’s leadership, China may be more “trigger friendly” than before.

The second geopolitical risk concerns the business environment in the DRC, which can change radically depending on the decisions taken in Kinshasa, the country’s capital. The DRC government may, for example, increase taxes, which would likely reduce the supply of cobalt downstream. Ivan Glasenberg, the former CEO of mining giant Glencore, cited rising taxes in 2019 as one of the reasons for suspending ore production at Glencore’s Mutanda mine.

Additionally, the DRC government can change regulations, revoke permits or renegotiate contracts. Earlier this year, DRC President Felix Tshisekedi said he was seeking to “rebalance” the DRC’s previous mining deals with foreign companies. Operating conditions in the DRC also expose cobalt companies to legal (eg US Foreign Corrupt Practices Act) and reputational risks. In sum, the DRC can be a difficult place to do business.

The third major geopolitical risk relates to regional and global events, such as wars, pandemics and natural disasters. Cobalt mined in the DRC is usually transported by rail to South Africa and shipped around the world from the port of Durban, the world’s leading cobalt export port. However, during the coronavirus pandemic, the South African government instituted a strict shutdown which delayed cobalt shipments and negatively impacted downstream businesses. Some companies have sought alternative export routes like the port of Dar-es-Salaam in Tanzania, but these routes have experienced storage and shipping capacity issues.

Natural disasters can also affect cobalt supply chains. In 2022, major flooding in South Africa damaged critical infrastructure at the port of Durban, forcing the port to temporarily suspend operations. Even after operations resumed, the port then had a backlog of shipping containers, which took nearly a week to clear up. Greater natural disasters in the future would create longer suspensions and larger backlogs.

Cobalt Market Risks

Even though regional and global geopolitics, including mother nature, align perfectly with US preferences, cobalt supply chains face market risks. These can also be classified into three categories.

First, the demand for electric vehicles can, and likely will, exacerbate the cobalt supply shortfall. Benchmark Mineral Intelligence predicts that sixty-two new cobalt mines, each producing 5,000 metric tons per year, will be needed to meet projected cobalt demand by 2035. Demand for electric vehicles primarily drives cobalt demand.

A 2018 European Commission Joint Research Center report noted: “The expansion of the electric vehicle market globally and in the EU will exponentially increase the demand for cobalt over the next decade. Reflecting increased demand, cobalt prices have fallen from around $36,000 per metric ton in July 2020 to around $52,000 per metric ton today.

The second market risk relates to the nature of cobalt mining, which is a tricky proposition as 90% of cobalt is mined as a by-product of copper or nickel. For example, the DRC produces most of its cobalt from copper operations, such as the Kamoto copper-cobalt mine. Therefore, cobalt mining faces the market dynamics of copper and nickel mining.

Troy Nazarewicz of Fortune Minerals wrote in an article for resource world review who”[a]this is the price of [copper and nickel] declined, a number of mines were closed, resulting in reduced cobalt production at a time of rapidly increasing demand for cobalt. The only major mine that produces mainly cobalt is the Bou Azzer mine in Morocco. Eventually, a few pending mines in Idaho will be as well. However, most cobalt mining remains subject to market forces unrelated to cobalt.

The third market risk is market concentration in the cobalt supply chain. In 2018, Glencore controlled around 30% of global cobalt ore production, China Molybdenum controlled 13%, Vale 3%, Gécamines 4% and Eurasian Resources Group 2%. No US company controls the main cobalt-producing mines, including the mines in the DRC.

Individual mines in the DRC often account for massive shares of global cobalt production; therefore, if these mines encounter regulatory or production issues, substantial mining capacity is taken offline. For example, in 2022, the DRC government suspended operations at China Molybdenum’s Tenke Fungurume mine, which accounted for 17% of DRC’s cobalt production that year, after China Molybdenum allegedly failed to disclose with specify the reserve figures. Such market concentration increases supply chain risk.

America must act

As the world enters an era of transformation characterized by US-China competition and the clean energy revolution, it is clear that cobalt will play a pivotal role. The companies and countries that mine and refine cobalt will control the advanced technologies – batteries in renewable energy, alloys in jet engines, magnets in military radars – in which cobalt is essential.

But right now, the United States is dangerously dependent on foreign companies and countries, including geopolitical rival China, for cobalt. As things stand, foreign actors, not Americans, will influence the future security and prosperity of the United States. Moving forward, U.S. industry and the U.S. government, like Chinese companies and the Chinese Communist Party, must work together to boost cobalt mining and refining in the domestic market.

Gregory D. Wischer is Vice President of Government Affairs at Westwin Elements, an American company set to build and operate the first major cobalt refinery in the United States.

Picture: Reuters.

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