Mikkel Stein Knudsen & Jari Kaivo-oja:
How can strategic foresight help prepare Finland for a healthy economic future? One element is to detect market movements, which, now and down the line, might affect Finland’s economy and manufacturing. The cobalt market is one such market.
The price of cobalt is surging. The price of the mineral has more than quadrupled over the past 26 months from a historic low of 21,750 $/ton in February 2016 to an all time high of 95,250 $/ton in March 2018. On Friday April 13 2018, trading closed at 92,000 $/ton.
This price development is remarkable for a number of reasons, and, as this blog post aims to show, it provides us with important questions and links to the global sustainable energy transition, to a healthy and competitive Finnish economy, and to possible geopolitical challenges of the future. We should pay more strategic attention to the monitoring of the global economy from the perspective of the Finnish manufacturing base. In the future we need strategic value mapping systems, of manufacturing, which include (1) independent models of value, (2) specific strategy and technology models and (3) growth models implicit in the life-cycle of the technology underlying the business model of the family of business models.
The blog post thus briefly covers five main questions:
- Why is the price of cobalt suddenly surging like it is?
- Why is the price development of cobalt important for Finland?
- Why might the cobalt market impose challenges for sustainable transition?
- Why does the cobalt market have geopolitical implications?
- How can we assess future implications of this issue?
The aim of the post here is not so much to provide answers, but rather to develop insights and key questions for additional research, which we believe would be of interest for the Government, Finnish policymakers, Finnish businesses, industrial stakeholders and academics across a range of fields. We should present a strategic important question: What is the role of Finnish manufacturing in global value creation and production networks?
The price of cobalt as a proxy for demand for electric vehicles?
The main driver of the dramatic price surge is linked by market participants to rising demand for electric vehicles (EVs) (Financial Times, 2018; The Economist, 2018). In the EV-sector lithium-ion (Li-ion) batteries are the preferred battery technology due to it’s energy density (Zubi et al., 2018), with cobalt used for lithium metal oxides. 75% of the global cobalt consumption is going into the battery sector (Fröhlich et al, 2017). As demand for EV’s increase, so does the demand for batteries, and so does the demand for cobalt.
The price of cobalt might therefore be a telling proxy for the general optimism surrounding the business ecosystem of electric vehicles – and the surging price of cobalt can be seen as an indicator that the car and battery industries, at least, are now betting big on EV markets. Of course, this price analysis is not only price indicator trend analysis, we should perform in the context of global economy. However, this is an interesting strategic case example with broader importance. We need to pay more attention to the price monitoring system of strategic resources relevant for the Finnish manufacturing base and economy.
Possible research ideas: Market development and global uptake of electric vehicles; linkages between EV sales and global cobalt consumption, the price monitoring system of strategic resources relevant for the Finnish manufacturing base and economy.
Finland and the cobalt industry
The largest cobalt refinery in the world is located in Kokkola, and Finland is the second largest producer of the refined cobalt in the world after China. Current (2017) Finnish production is at 12,200 tons of Cobalt per year (GTK, 2018). Finland is not a marginal player in this field of global manufacturing…
While a large majority of the cobalt used for refining is imported (thereby possibly limiting profits added by the price surge), the value of the refined cobalt outputs have increased remarkably. If each ton of refined cobalt is worth $70,000 more than two years ago, an annual production of 12,200 tonnes of refined cobalt is worth $850m more.
The surging price of cobalt alone therefore by itself lifts Finnish exports by as much as €0,5bn in 2018 compared to 2016.
There are current plans of mining for cobalt at Terraframe (formerly Talvivaara) and near Kuusamo, although the developments are not quite without issues (Terraframe, 2017; Yle, 2018; Lapin Kansa, 2018).
Through mining and refining of cobalt as well as through a number of other aspects, this growing battery manufacturing value chain might be a key value-producing network for the Finnish economy of the near future. We need proactive industrial and manufacturing policy platform based on private-public governance. One important idea behind this blog post is that we need a more proactive industrial policy in Finland.
It has indeed already been noted that Finland is well positioned for this growth market (Aamulehti, 2017; Business Finland, 2017), and this month (April 2018), the Ministry of Economic Affairs launched a new program for Batteries for Finland 2018-2020 in order to strengthen this agenda further (Työ- ja elinkeinoministeriö, 2018). In addition to attracting new international mining investments, the plans aim at generating a higher value part of the battery manufacturing chain.
One important strategic aspect of economic trend research is that we can understand that relative advantages are variable dynamic factors. Therefore, they should be constantly monitored on the basis of global economic changes. Of course, prices changes are such factors.
Possible research ideas: Scenarios and a strategy architecture for Finnish cobalt mining and refining, Orchestration of the EV battery business ecosystem.
Can lack of cobalt hinder a sustainable transition?
A sustainable global transition requires new technologies for energy production, transportation, etc. However, these new technologies are dependent on various metals, including cobalt. In 2016 Finnish researchers from VTT and the Geological Survey of Finland assessed this ‘Role of critical metals in the future markets of clean energy technologies’ in a peer-reviewed article (Grandell et al., 2016). Here availability of other metals (e.g. silver) is deemed even more critical, but for cobalt the researchers find that with assumptions of a global clean energy transformation, cumulative demand for cobalt for the period until 2050 can exceed known global resources by almost 200 pct.
In other words, positive scenarios for fast climate change action can be challenged by the lack of minerals. If the world transitions with the use of current technologies, there might simply not be enough cobalt available for the job.
It is not without reason that a recent published study concluded that “Cobalt, however, is a reason for major concerns in the Li-ion battery sector” (Zubi et al., 2018).
Possible research ideas: Critical metals as possible limiting factors for cleantech-technologies; Designing optimal policies for reducing dependence on critical metal; Substitutionality of critical metals in various technological fields.
Why does the cobalt market have geopolitical implications?
The main supplier of cobalt in the world is the Democratic Republic of Congo (DRC), which supplies more than 50% of the current global production of cobalt (Fröhlich et al., 2017). Having one dominant global supplier entails supply risks, increased by political and economic instability. In 1978, civil unrest in the DRC quickly increased the price of cobalt by 6.5 times (Bailey et al., 2017), the so called “Cobalt Crisis” (Shedd et al., 2017). Depending on the stability and development of the DRC, there might be concerns regarding continuous supply.
The second supply-related concern relates to the dominant position of China. A 2015-paper in Energy Policy stated that “Whereas experts in the minerals industry are mostly aware of China’s strong position, many stakeholders in and advocates for renewable technologies are not” (Stegen, 2015). This strong position certainly holds true for cobalt, leading to concerns of what might happen if China corners the cobalt market (The Economist, 2018). The Chinese company China Moly was also in talks to take over Freeport Cobalt’s refinery in Kokkola, but the deal fell through in the summer of 2017 (Reuters, 2018).
If there is a global scarcity of certain minerals, and if one nation holds the key to these minerals, it is easy to imagine the availability might have important geopolitical implications (cf. Øverland et al., 2017).
Possible research ideas: Security and geopolitical implications of mineral resources for clean energy technologies; black swans and resilience research.
What can we say about the future?
Like with any other raw material, the price and the criticality of cobalt hinges on supply and demand. In the terms of minerals these fundamental variables can meaningfully be subdivided into specific variables (adapted from Martin et al., 2017):
Fig. 2. Determinants of price and criticality of minerals (inspiration from Martin et al., 2017)
The supply of cobalt available for the market will be driven both by the amount of cobalt resources and reserves naturally available, by the amount of cobalt that is recycled, and by the amount of cobalt actually produced. The production supply will be a function of price and profitability, but other issues like social and environmental concerns might also affect production constraints, e.g. in Finnish mining projects.
Similarly, demand for cobalt will be a function of the demand for technologies using cobalt, but also shaped by the technical and economic feasibility of using alternative raw materials or using alternative technological solutions (ie. substitutionality).
A thorough foresight or technological forecast study should therefore consider each of these variables individually, in the case of Finland or even globally. Given the potentially major role of cobalt for sustainable transition, for global geopolitical concerns or ‘just’ for the economy of Finland, this would however be a very interesting endeavour to pursue.
Possible research ideas: Scenarios for global cobalt demand; Scenarios for Finland’s mining industry.
Mikkel Stein Knudsen
Project Researcher, Finland Futures Research Centre, Turku School of Economics, University of Turku
Research Director, Adjunct Professor, Dr, Finland Futures Research Centre, Turku School of Economics, University of Turku
This research work has been supported by the Finnish Strategic Research Council [grant number 313395]. The blog text refers to the preliminary foresight and background analyses of the Manufacturing 4.0 project.
Photo: Tesla, pixabay.com