LONDON / BEIJING (Reuters) – China's accumulator GEM has ceased to buy cobalt from Glencore because the price of battery material dropped below, which was agreed in a three-year agreement between the two companies, sources said.
PHOTO PHOTO: The Glencore brand logo is presented at the company's headquarters in Baar, Switzerland, on July 18, 2017. REUTERS / Arnd Wiegmann / File Photo
DRAGULJ (002340.SZ) stated in a declaration of 14 March that it would purchase 52,800 tonnes of cobalt from the mining and commercial giants Glencore (GLEN.L) between 2018 and 2020 without disclosing the price.
The CBD0 CBD0 price at London Metal Exchange has almost halved to around $ 55,000 per ton since the end of March, when it reached record highs of expected demand growth. Cobalt is crucial for lithium-ion battery batteries used to drive electric vehicles, the growing automotive industry.
World prices have fallen due to the surplus cobalt in China, the world's largest producer of cobalt chemicals and batteries for electric vehicles. It is expected that the market will take place for several years due to anticipated excessive offers.
"Price has dropped this way," one source said, adding that GEM did not have an alternative supplier, but used its cobalt supplies and that the Chinese company did not attempt to renegotiate the contract recently.
Following the filing, GEM and its subsidiaries purchased 13,800 tonnes of cobalt from Glencor in 2018, 18,000 tonnes in 2019 and 21,000 tonnes in 2020.
"GEM did not buy because of what happened with the price. They did not open the letters of credit and they told Glencore, unfortunately, but we can not take it at an agreed price," another source said.
(For graphics on "breaking the price of cobalt exceeds the industry" click tmsnrt.rs/2QMsfF0)
One source said that GEM tried to renegotiate the price, but this was much earlier in the year when cobalt was close to 70,000 dollars per tonne. Another source said that there were recently some moves to try to renegotiate.
Sources said they did not know if Glencore would try to sue GEM, but one of the Chinese laws mentioned meant that they were "contradicting foreign companies" that demanded compensation when the contracts were broken down.
GEM did not respond to a comment request. Glencore did not comment.
Banks issue letters of credit to secure payments to certain companies or people, as long as requirements are met, such as the delivery of goods.
The sources say that GEM was not alone in stopping purchases because some other Chinese companies that produce cobalt chemicals or lithium-ion batteries for electric vehicles also stopped buying.
In a report on December 3, Glencore said that some buyers had withdrawn from cobalt contracts.
"All materials that were not sold were seated in warehouses in Johannesburg," said the source of the cobalt industry.
While industry is usually talking about cobalt metal, the excess is in cobalt hydroxide, which is used to make sulphates for the cathode portion of lithium-ion batteries.
Hydroxide is a by-product of copper in the Democratic Republic of the Congo, with the world's largest cobalt reserves. This year, the DRC is expected to produce almost 90,000 tonnes in the market this year, estimated at 135,000 tonnes.
Prices for cobalt hydroxide, a percentage of the price of metals, also known as liabilities, reached a level above 90 percent last year and has since fallen to around 65 percent.
"Despite the Katanga news, payment obligations are still around 65 percent," said the source of the cobalt industry.
Glencore stated in November that his subsidiary Katanga Mining (KAT.TO) stopped exporting cobalt from the Kamoto project to the DRC while building an uranium removal facility.
The instructions for the production of cobalt from Katanga amounted to 11,000 tonnes this year and 34,000 tons in 2019. Following the suspension of exports, the 2019 guidelines were corrected to approximately 26,000 tonnes.
Reporting by Pratima Desai and Tom Daly; Editing by Veronica Brown and Dale Hudson