Electric-Vehicle Boom Is a Boon for Coal King Glencore
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)