Geopolitics of Cobalt
Cobalt is a vital part of the global energy transition. Cobalt is used in rechargeable battery electrodes, as well as mobile phones and in aircraft manufacturing. Cobalt prices have crashed recently thanks to a major glut in the market, but long term demand looks strong thanks to the rising appetite for electric vehicle batteries.
Ultimately much will hinge on whether lithium-iron phosphate (LFP) batteries which do not need cobalt will take off. LFP batteries have gained traction in China given their advantages in terms of efficiency compared to Lithium, Manganese and Cobalt (NMC) batteries. NMC batteries remain more expensive for now, so unless they become much more cost effective cobalt demand should remain strong in the long term.
What are the Risks?
Cobalt is uniquely subject to geopolitical risk. Firstly, supply of the metal is heavily concentrated, around 70% of global cobalt is produced in the Democratic Republic of Congo (DRC). The mineral rich Central African state is a by word for political instability and armed violence. The country has suffered two civil wars and numerous violent insurrections and rebellions since independence from Belgium in 1960. Considering the exploitation, dictators, and war the DRC has suffered over the last century it is a major achievement the country has remained as one and is now enjoying positive economic growth.
The recent re-election of President Felix Tshisekedi despite allegations of fraud was accepted by the international community. The M23 rebellion, widespread poverty and the country’s elite hoarding its wealth remain unsolved.
Mining in the DRC
Mining in the DRC is often a dangerous and unethical affair. Amnesty International paints a bleak picture of the dangers and abuses suffered by often desperately poor workers and children operating in degrading, dangerous conditions for a few dollars a day.
People are often illegally evicted from land to make way for Cobalt mines. Efforts like the US Dodd-Franks Act designed to ensure only minerals sourced outside conflict zones are only partially workable. All this mining ultimately feeds the global cobalt supply chain dominated by major mining firms like Glencore, Ivanhoe and Zhejiang Huayou Cobalt.
The China Factor
In January 2024 DRC President Felix Tshisekedi gave a surprise announcement on a renegotiated deal with Chinese mining interests. Negotiations have been ongoing for over a year in an attempt to create a replacement for 2008 deal between the DRC and Chinese firms. Under the terms of the 2008 deal Chinese firms were supposed to build US$ 3 billion worth of much needed infrastructure across the country. But many of these promises failed to materialise - stoking much anger in people across the vast nation.
The 2024 deal promises to hand over US$7 billion to Kinshasa, but many are pointing at the lack of transparency around the deal, the failure of previous Chinese promises to be made and likelihood that the country’s predatory elite will take much of the wealth. If the DRC fails to enjoy the benefits of the deal in form of new roads, power supplies and housing, it will be a historic failure given the political leverage afforded by producing 70 % of the global supply of an increasingly important metal.
One thing is for certain that Chinese firms will continue to dominate mining in the DRC. This gives China a great deal of power over the cobalt trade - highlighting the geopolitical risk associated with the metal.
In contrast US ties with the country have declined, the last US backed mine was symbolically purchased by China’s Molybdenum group. Other western miners such as Canadian Ivanhoe remain active in the country.
The rise of the M23 rebellion
The Kinshasa government have a major headache in the form of the M23 rebellion which has once again gathered momentum and is threatening to cut off the eastern city of Goma. The DRC government blame neighbouring Rwanda for backing the rebellion – control over gold supplies around Goma is said to be a factor.
Rwandan President Kagame denies any involvement in the rebellion and despite international efforts to make peace the situation in the east of country looks set to worsen. The human cost in death, injury and forced resettlement as people flee violence has and will continue to be immense.
Cobalt is primarily mined in the south of the country, but growing violence is not going to encourage further investment or help the country’s growing but fragile economy.
What Can Companies Do?
The glut in cobalt prices is an opportunity to stockpile the metal ahead of future increases in price. Some companies are already reportedly doing this.
Indonesia has emerged as another major cobalt supplier (thanks to its established role as a nickel producer) – giving buyers another opportunity to diversify their supply chain.
Watching the progress of the NMC type batteries, if these become more cost effective, they could partially supplant cobalt based batteries. In turn this could collapse the price of cobalt, benefiting those buying the metal, but of course a disaster for miners.
What can the DRC do?
China’s place in the politics of the DRC and cobalt looks to be unshakeable. But the DRC should be looking to ensure it can get the best possible deal from China in return for its mineral wealth. Improving relations with the EU and US could give the DRC more leverage with China. It can also help its citizens by taking concrete steps along with major mining interests to seriously improve and enforce working and environmental conditions in mines across the country.
The DRC’s position as the world’s biggest cobalt supplier gives its leverage in these negotiations. But given the country’s political chaos and poor history of profiting from its mineral wealth it is not certain that the DRC can use cobalt to its advantage.