Umicore double down on European battery supply chain, Kokkola purchase confirmed

After many weeks of speculation, official announcements on 23 May from both Umicore and Freeport Cobalt confirm the sale of the Kokkola refinery in Finland to Umicore.

Umicore will purchase the refinery and battery precursor operations from Freeport Cobalt, whilst the cobalt fine powders, ceramics, pigments, chemicals and catalysts activities also on the site will continue to be operated by Freeport.

Purchasing Kokkola, the only large-scale cobalt refinery outside of China, enables Umicore to accelerate their battery supply chain plans in Europe. The lithium ion battery precursor produced at Kokkola will feed Umicore’s new cathode facility in Nysa, Poland, currently under construction and due to start operations in 2020.

Since Freeport McMoRan agreed the sale of the Tenke Fungurume Mine (TFM) in the DRC to China Molybdenum (CMOC) for $2.65b in 2016, a deal to sell the refinery has been on the table.

Initially, as part of the sale of TFM, CMOC had the right to purchase the refinery at a later date, although this deal was quashed in 2017.

Freeport have reportedly been keen to sell the refinery since, although had been unable to find the right buyer. As part of the sale of TFM to CMOC, Freeport retained the right of raw material supply from the TFM mine in the DRC to feed Kokkola as part of a long-term contract.

The long-term supply contract has reportedly been a sticking point for the sale of the refinery as it was believed that any sale would void the contract leaving the buyer having to source material to feed the refinery, something which up until recently would have been challenging. Benchmark Minerals estimates that Kokkola consumed 13,000 tonnes of cobalt in 2018, just under 10% of global supply.

With several new supply additions from the DRC, primarily from Glencore and ERG, the cobalt market is expected to be in oversupply until the early 2020’s; particularly for crude cobalt hydroxide, the feedstock produced at TFM and large-scale mines (LSM) in the DRC.

With prevailing market conditions anticipating an oversupply of cobalt hydroxide, this may have facilitated the sale of Kokkola to Umicore, with CMOC willing to transfer a portion of the long-term feed supply from TFM to the new buyer. Benchmark Minerals anticipates this to be the arrangement and that Umicore will, at least in part, feed Kokkola with TFM material.

Cobalt prices have tumbled since Q1 2018

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Whilst the cobalt refining and cathode industries have been closely linked in China for some time, this has yet to be developed in Europe. Umicore currently has a small amount of cobalt refining capacity in Belgium, but nothing on the scale that the Kokkola plant and new facility in Poland will bring to the company.

In order to be a tier one supplier through the EV supply chain there is a requirement not only for quality, but also quantity – this acquisition will enable Umicore to be able to commit to ‘EV volumes’ in Europe.

Up until now, announcements have been very limited on cobalt refining in Europe, with BASF committing to a cathode plant in Harjavalta Finland, to be fed by the Norilsk refinery in the same location. March 2019 also saw Johnson Matthey commit to a cathode production facility in Konin, Poland, but nothing directly linking cobalt raw material refining to the cathode industry.

The purchase by Umicore marks the first foray by a cathode company into large scale raw material refining in Europe and yet another example of vertical integration in the lithium ion battery supply chain.

Umicore’s decision to acquire Kokkola demonstrates the long-term outlook for cobalt remaining in lithium ion battery cathodes is strong, despite claims for some in the industry that it can be removed.

The long-term trend to reduce cobalt remains, and the push to NCM 811 continues, but this is challenging on safety and lifecycle issues. In addition to the engineering challenges around using NCM 811, current cobalt prices and reduced subsidy policies in China have lessened the drive from downstream OEM’s to use the more nickel rich version of NCM.

NCM 811 technology is already available for cylindrical cells, but with the majority of the EV industry choosing pouch or prismatic batteries, some development work remains for these formats. Benchmark Minerals’ view is that China will adopt the technology from 2020 onwards and other markets from 2021.

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