Saturday, 25 May 2019

Responsible cobalt sourcing for EVs: a new role for blockchain emerges

Blockchain may soon become an important auxiliary tool in responsible sourcing of cobalt, a prime element in batteries for electric vehicles. Assuming, that is, international authorities or organizations are willing to help drive its implementation.

The movement has already started. Miners and carmakers are flocking to affiliate with the Responsible Cobalt Initiative set up in 2016 by the Organisation for Economic Co-operation and Development (OECD) and China Chamber of Commerce of Metals, Minerals & Chemicals Imports & Exports (CCCMC), and the London Metal Exchange plans to ban exchange trading of metal that does not come with proof of ethical sourcing.

China consumes the lion’s share of cobalt used in battery manufacturing. Anxious to conform to new industrial ethics and sustainability standards in the “green” EV industry, Chinese sources told S&P Global Platts they look forward to seeing blockchain make the supply chain more transparent.

Nanjing Hanrui, which imported more than 5,000 mt of cobalt metal equivalent from the Democratic Republic of Congo in the 12 months through June for use by its refineries, believes blockchain technology could help improve the traceability of cobalt raw materials, particularly from the DRC.

It is an issue that’s not going to go away.

Even though new battery technologies are likely in future to reduce the percentage of high-priced cobalt used in batteries, in a move to reduce costs, cobalt continues an indispensable component.

Without technological advances like blockchain, with its records that are tough to change, difficulties will persist.

More than 60% of the world’s cobalt supplies come from the DRC, where instances of child labor have recently come to the fore as a result of the boom in demand for cobalt from the EV sector.

According to Isabelle Ramdoo, director of the International Institute for Sustainable Development, an intergovernmental forum, no less than 20% of the DRC’s cobalt derives from “informal” mines, where unethical labor practices could possibly occur.

Despite new mine projects elsewhere, the world’s dependence on cobalt sourced from the DRC will likely rise, due in part to mineral quality: cobalt, typically a by-product of copper or nickel mining, is also frequently associated with arsenic in deposits elsewhere.

Hanrui considers it “rational and necessary” for the LME to introduce controls to ensure responsibly sourced trading, expected in early 2019. In addition, starting next year, the LME will demand that all companies that source at least 25% of their metal from small-scale mines in the DRC undergo a professional audit.

London-based analysts SP Angel say blockchain technology is increasingly being used to track materials from the mine to the finished product, and could soon be used to trace the path from that product to the recycling plant and to the next form the material takes, making it much more difficult for unethical resource suppliers to enter the supply chain.

With this technology, cobalt is placed in a sealed bag after extraction. Each bag is marked with a digital tag that can be logged into the blockchain with a mobile device, recording the date, time and location to verify the origin of the cobalt, a process repeated at each step until it becomes part of a finished product, SP Angel says.

“More assets, including the mining sector, are being given a blockchain nature, according to a recent trend we observed,” Qianli Ma, vice president at 8btc.com, a Chinese blockchain and cryptocurrencies forum, told S&P Global Platts Monday.

Though traceability is not the main application of blockchain technology in physical markets, its usage in the supply chain could build a secure and tamper-resistant database, supplementing those of traditional industries.

LME three-month cobalt prices soared 129% in 2017, mainly due to high demand from battery makers amid fears of supply chain disruptions due to the heavy reliance on sourcing material from the DRC, which is considered a geopolitically risky supplier.

A move to diversify supplies — new capacity is expected on stream not only from Glencore in the DRC but also from companies in Canada and Australia — has contributed in recent months to an assuaging of these concerns and to a dip in prices, which nonetheless remained strong at $32-33/lb this week.

That said, could there be too much cobalt if all the new projects mooted forge ahead? Miners believe this could occur in the short term.

But this may all depend on Chinese policy. China aims to sell 2 million EVs by 2020 as part of its “blue sky” action plan to reduce air pollution, which was published early July.

Production costs will be increasing in China during the plan’s execution time, according to Wood Mackenzie, which sees a possibility the goal will not be attained. Encouragement of a “green transport system,” forcing a switch from trucking to rail and waterways for moving raw materials, means short-distance transportation will become more expensive, according to the consulting firm.

Still, Eurasian Resources Group, which has a cobalt tailings project that recycles residues in the DRC, sees “robust demand in the next two years.”

Producers Huayou Cobalt and Yantai Cash, whose demand for cobalt raw material total 30,000 mt and 2,400 mt per annum, respectively, are even more optimistic.

Huayou believes cobalt prices will remain volatile in the short term.

“Cobalt demand is very strong in [the next] five-10 years and the cobalt price is still on a bull trend,” a Cash official said during a July conference call. “The cobalt price has dropped recently, but we think it is normal – as a price retracement after last year’s hype,” he said, seeing summer lulls in Europe and excess supply as bearish factors.

The companies support ethical sourcing initiatives, but also note the challenges involved in discovering the origin of material when sourcing it in a free trade market, especially from port stocks.

The problem could be solved one day when the physical markets and internet technologies unite.


source: Platts
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