Electric-Vehicle Boom Is a Boon for Coal King Glencore
December 12 2017 - 12:17PM
Dow Jones News
By Scott Patterson
LONDON -- Glencore PLC, long known as one of the world's
dominant coal traders, in a twist is finding itself the beneficiary
of the greening of the global economy.
The Swiss mining giant is benefiting from a coming boom in
electric-vehicle production, which is driving up the value of
copper, cobalt and nickel -- whose demand is expected to surge from
production of the vehicles and the lithium-ion batteries that will
power their growing fleets.
"Electric vehicles will be disruptive to the world," Chief
Executive Ivan Glasenberg said on an investor call Tuesday, and
will boost demand for those three commodities.
The shift toward commodities that are likely to benefit from
policies meant to curb global warming is a noteworthy shift for a
company that once bet its future on coal. Mr. Glasenberg said days
after Glencore's 2013 purchase of Xstrata PLC that the deal -- the
mining sector's largest ever -- was a "a big play" on coal.
But tumbling coal prices in the following years dinged
Glencore's earnings, raising concerns that Mr. Glasenberg's bet had
gone bust. Coal prices have rallied in the past year along with
most other commodities.
Now, commodities involved in the production of electric vehicles
are becoming a primary earnings driver for Glencore. On Tuesday,
the company forecast strong production growth in all three metals
over the next few years, primarily due to electric-vehicle demand.
It expects copper production to gain 25% by 2020 from 2017, cobalt
-- of which it is the world's No. 1 producer -- to more than double
and nickel to rise 23%.
The company said it has completed an $880 million upgrade of one
of its massive copper-mining operations in Congo -- Katanga Mining
-- which will help it benefit from rising demand for copper and
cobalt.
Glencore had suspended production at Katanga in September 2015
so it could refurbish the mine and double annual production of
copper to 300,000 metric tons, a goal it expects to reach in 2019.
It said Katanga is expected to produce 34,000 tons of cobalt by
then, likely making it the most productive cobalt mine in the
world.
A CRU Group report commissioned by Glencore forecast that by
2020, electric-vehicle related demand -- including grid
infrastructure and storage, electricity generation, charging
stations and the vehicles themselves -- could require an additional
390,000 tons of copper, 85,000 tons of nickel and 24,000 tons of
cobalt.
Year-to-date, copper prices have gained 19%, nickel is up 8.5%
and cobalt has more than doubled, according to FactSet.
Shares of Glencore are up 26% this year and have risen more than
fivefold since investors fled the stock in 2015 amid concerns that
tumbling commodity prices could strain the miner's debt-laden
balance sheet. Since then, Glencore has slashed its net debt to
$13.9 billion from nearly $30 billion.
Cobalt, a byproduct of copper and nickel mining, is expected to
see the biggest increase in demand from electric vehicles. Cobalt
demand from electric vehicles could surge to 314,000 tons by 2030,
a more than fourfold increase from global supply in 2016, according
to the report by CRU, a London-based commodities researcher. Mr.
Glasenberg said he doubts there is enough cobalt in the world to
meet that demand.
"Cobalt is basically off the charts," Mr. Glasenberg said. He
said metal prices are going to need to increase to provide
incentives for miners to start new projects to supply the
commodities required for rising electric-vehicle demand "which we
believe is sitting around the corner."
Analysts say rising demand for cobalt could provide a supply
bottleneck for electric vehicles. One concern is over Congo, which
supplies about 60% of the world's cobalt -- much of it from
Glencore. Uncertainty about the plans of Congo's current president,
Joseph Kabila, who has exhausted his two terms in office but
refused to step down, has sparked concerns about civil unrest in
the country, which has been roiled by bloody civil wars and rebel
fighting for more than two decades.
"The level of DRC risk in cobalt supply cannot be underplayed,"
Colin Hamilton, managing director of commodities research at
Canadian bank BMO Capital Markets, said in a recent note. "In our
view, the wider market has become sanguine to the geopolitical risk
in that country."
Mr. Glasenberg said Tuesday that Glencore has entered agreements
to supply cobalt to certain customers, but prices will be set by
the spot market. Glencore says one selling point for its cobalt is
that it isn't tainted by "artisanal" mining, cobalt produced by
independent miners in largely unregulated markets. Human-rights
groups such as Amnesty International have criticized such mining
practices in Congo, which it says can harm children who work at the
mines.
"There are a lot of customers who want to lock in supply," Mr.
Glasenberg said. "We do have clean cobalt, it's the right cobalt,
people want it."
Write to Scott Patterson at scott.patterson@wsj.com
(END) Dow Jones Newswires
December 12, 2017 12:02 ET (17:02 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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