Exclusive: Chinese battery company halts Glencore cobalt purchases – sources



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LONDON / BEIJING (Reuters) – Chinese battery maker GEM has stopped buying cobalt from Glencore while the price of battery material has fallen below the agreed value in a three-year contract between the two companies, according to sources close to the matter.

FILE PHOTO: The commodity trader Glencore's logo is portrayed in front of the company's headquarters in Baar, Switzerland, July 18, 2017. REUTERS / Arnd Wiegmann / File Photo

EGG YOLK (002340.SZ) said in a regulatory filing on March 14 that it would buy 52,800 tonnes of cobalt from mining giant Glencore (GLEN.L) between 2018 and 2020, without revealing the price.

Cobalt CBD0 prices on the London Metal Exchange fell almost by half to $ 55,000 a tonne since the end of March, when record highs were reached in expected demand growth. Cobalt is crucial for rechargeable lithium-ion batteries used to power electric vehicles, a growing industry in the automotive industry.

Global prices fell due to a surplus of cobalt in China, the world's largest producer of cobalt chemicals and electric vehicle batteries. The market is expected to struggle for a few years due to the expected oversupply.

"The price has dropped so much," one source said, adding that GEM had no alternative supplier but was using its cobalt stocks and that the Chinese company had not attempted to renegotiate the contract recently.

According to the filing, GEM and its subsidiaries would buy 13,800 tonnes of cobalt from Glencore in 2018, 18,000 tonnes in 2019 and 21,000 tonnes in 2020.

"GEM did not buy because of what happened to the price. They did not open the letters of credit and told Glencore, sorry, but we can not accept the agreed price, "another source said.

(For a graph on "Cobalt price collapse overloads the sector," click tmsnrt.rs / 2QMsfF0)

One source said GEM tried to renegotiate the price, but that was much earlier in the year when cobalt was close to $ 70,000 a tonne. Another source said there were some moves recently to try to renegotiate.

The sources said they did not know whether Glencore would try to sue GEM, but one said that Chinese law meant "the odds are against foreign companies," wanting compensation when the contracts were stopped.

GEM did not respond to a comment request. Glencore declined to comment.

Letters of credit are issued by banks to secure payments made to specific companies or individuals, provided that requirements such as the delivery of goods are met.

Sources say GEM was not alone in stopping purchases, as some other Chinese companies that produce cobalt chemicals or lithium-ion batteries for electric vehicles also stopped buying.

Glencore, in an investor update on Dec. 3, said some customers had reneged on cobalt contracts.

"All the material they have not sold is in warehouses in Johannesburg," said a source in the cobalt industry.

While the industry usually talks about metallic cobalt, the surplus is in cobalt hydroxide, used to make sulfates for the cathode part of lithium-ion batteries.

Hydroxide is a byproduct of copper in the Democratic Republic of Congo, home to the world's largest reserves of cobalt. The DRC is expected to produce about 90,000 tonnes this year on an estimated market of 135,000 tonnes.

Cobalt hydroxide prices, a percentage of the price of the metal also known as payables, reached levels above 90% last year and have since fallen to about 65%.

"The accounts payable are still around the 65% level, despite news from Katanga," the cobalt industry source said.

Glencore in November said its subsidiary Katanga Mining (KAT.TO) has suspended cobalt exports from the Kamoto Project in the Democratic Republic of Congo while constructing a facility to remove uranium.

Guidance for cobalt production from Katanga was 11,000 tonnes this year and 34,000 tonnes in 2019. The guidance for 2019 was revised to about 26,000 tonnes after the export shutdown.

Report of Pratima Desai and Tom Daly; Editing by Veronica Brown and Dale Hudson

Our Standards:The Thomson Reuters Trust Principles.

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