Battery manufacturers and car companies are all rushing to obtain multiyear contracts with cobalt mining companies for lithium ion batteries.
And according to Bloomberg, Apple (NASDAQ: AAPL) is reportedly in talks to buy long-term supplies of cobalt directly from miners as well, as it seeks to ensure it will have enough of the key battery ingredient.
The trend has gained traction amid industry fears of a shortage of cobalt driven by the electric vehicle (EV) boom.
Apple has never before purchased cobalt directly from miners and is negotiating to buy thousands of metric tons of cobalt annually for the next five years or more in an effort to avert potential production problems for its devices.
Cobalt is a critical ingredient in the lithium ion batteries that power Apple’s iPhones, iPads, Apple Watches, and MacBooks. With the demand for cobalt soaring and supply tightening, a shortage of the raw material would be a major risk to Apple’s business.
By acquiring cobalt directly, Apple could ensure its battery manufacturing partners have the material needed to continue feeding batteries to the company for its flagship products. Apple may also be able to increase margins on the sale of each of their devices if they are able to negotiate better cobalt prices by buying in bulk.
The iPhone maker is one of the world’s biggest end users of cobalt for the batteries in its gadgets, so its no surprise then that it would begin discussions with miners as a shortage looms. Still, the company has always left the business of buying the metal to the companies that make its batteries.
The talks go to show that the tech giant is intent on ensuring that the cobalt supplies for its batteries are sufficient as the rapid growth in battery demand from EVs is threatening to reduce available quantities of the metal.
Apple’s move means the tech giant will find itself in competition with carmakers and battery producers to lock up cobalt supplies. BMW AG, Volkswagen AG, Samsung SDI are all among the names of companies racing to secure multiyear cobalt contracts with miners to ensure they have the supplies necessary to keep up with ambitious EV production targets.
SK Innovation, South Korea’s leading oil refiner, signed a cobalt and nickel supply deal this week with Australian Mines Ltd. worth about $3.9 billion at current prices, the Perth-based miner said in a presentation Wednesday.
The South Korean SK Innovation plans to use the raw materials at an EV battery production facility in Hungary, and agreed to buy all of Australian Mines’ Queensland state-based Sconi mine development output for the next 13 years according to the presentation.
BMW is also nearing a 10-year supply deal according to the carmaker’s head of procurement.
Roughly a quarter of all current cobalt production is used in smartphones. While these devices use about 8 grams of refined cobalt, the battery for an EV requires more than 1,000 times more of the metal. Apple currently has around 1.3 billion existing devices, and Apple’s CEO Tim Cook has been interested in the prospect of EVs for years.
Cobalt prices have more than tripled in the past 18 months, trading above $80,000 a metric ton.
However, cobalt is one of the most controversial materials in electronics. Two-thirds of the world’s cobalt supply comes out of the Democratic Republic of Congo where international human rights advocates like Amnesty International have said child labor in mining is a problem. In January 2016, Amnesty International published a report that said tech companies and car manufacturers weren’t doing enough to prevent child labor in the Democratic Republic of Congo.
In response, Apple and other major tech companies worked to ensure their cobalt supplies come from mines that don’t employ children. Buying supplies directly from miners would give Apple more visibility into mining labor practices. Apple now publicly publishes a list of its cobalt suppliers.
Labor practices aside, Apple primarily wants to ensure it has enough supply of cobalt at fair prices for its upcoming gadgets. And the company certainly has deep enough pockets to sign a multiyear supply deal.
“Everyone agrees that cobalt is likely to be in deficit in the coming years, and for a company like Apple, lithium ion batteries are key, and therefore security of supply of the raw materials going into those batteries is crucial,” said Andries Gerbens, a trader at London-based Darton Commodities.
Gerbens believes Apple’s move “further strengthen(s) the bullish sentiment that’s already seen in cobalt today and has been for awhile.”
“I think it demonstrates that indeed there is a genuine concern among the bigger consumers that availability is going to be an issue going forward,” he said.