By Ernest Scheider and Pratima Desai
SALMON-CHALLIS NATIONAL FOREST, Idaho (Reuters) – The United States’ only cobalt mine sits in the woods of northern Idaho, a dilapidated mass of steel and dirt too expensive for its owner to operate after Chinese rivals flooded global markets with cheap supplies of the blue metal used in electric car batteries and electronics.
Jervois Global, which dug the mine into the side of a mountain nearly 8,000 feet (2,400 meters), watched helplessly last year as cobalt prices plunged after China’s CMOC Group opened the Kisanfu mine in the Democratic Republic of Congo, pushing global output of the metal to an all-time high. The Idaho site, which Jervois bought in 2019, was idle in June 2023 just weeks before it was due to open. More than 250 workers lost their jobs. A skeleton crew now rotates unused rock-crushing equipment weekly to keep it from flattening under its own weight. “We’ve been honest with our employees and said, ‘This is all about the price of cobalt,’” site manager Matthew Lingrich told Reuters during a visit to the facility. Jervois says cobalt prices need to hit at least $20 a pound to open the site. But prices were near $12.17 in July. BHP faces a similar dilemma, Albemarle (NYSE:) and other Western mining companies are trying to compete with metals produced by Chinese-linked companies, some of which use coal-fired electricity, child labor or other practices that fall short of standards set by many governments and manufacturers. Western miners say their rivals have inherent cost advantages that allow them to rapidly expand production even as prices for cobalt, lithium and nickel have fallen by more than a third in the past 18 months. As a result, operating costs for many of these Western companies have exceeded what market prices would cover.
That has fueled growing calls from some policymakers and mining companies, including Jervois and Albemarle, for a two-tier pricing system with a premium for sustainably produced metals, according to interviews with more than three dozen traders, investors, executives, purchasing agents and pricing agencies.
The plan is to charge higher fees for sustainably produced metal, either through direct transactions or through multiple prices for the metal listed on futures exchanges, depending on the production method. For example, there would be one price for standard nickel and another for green nickel. “Western mining companies simply can’t compete with China, and China has shown a willingness to drive market prices down dramatically,” said Morgan Bazilian, director of the Payne Institute for Public Policy at the Colorado School of Mines. The two-tier pricing could radically change how metals needed for the energy transition are bought and sold for centuries, but it would also reduce market transparency as mining companies could bypass metals exchanges to negotiate directly with customers. It could also lead to multiple definitions of what exactly constitutes “green metal,” two analysts told Reuters.
“Commitments have a cost” Industry leaders have been pushing for dual pricing structures for years, but the call for change began to gain traction among investors, policymakers and customers last fall as Western governments grew increasingly concerned about Chinese competition. In meetings across Washington and Brussels, mining executives have been pleading with governments for some kind of intervention to get dual pricing more widely adopted, suggesting that tariffs, supply chain transparency requirements or government insurance for mines could be potential remedies, according to three industry sources. Officials from the United States and the European Union have privately expressed sympathy for the mining industry, according to two of the sources, but have so far been reluctant to inject themselves into the mechanics of how exchanges and others set prices.
“I don’t want to say what markets should or shouldn’t do to ensure strong ESG practices,” said Jose Fernandez of the US State Department, who oversees a program designed to facilitate mineral supply deals. “But it’s true that all of these commitments come at a price.”
As a result, mining industry customers, such as automakers, find themselves in the uncomfortable position of trying to keep their costs low while maintaining a secure and diversified supply of metals. Some deals are taking shape, in part thanks to emissions regulations.
By 2027, the EU will require electric car makers to show where they buy their metals and the carbon footprint of their production. Refusal to comply means electric cars cannot be sold in the region, a step the US has yet to take but is widely seen as the world’s most aggressive move to boost supply chain transparency and is likely to fuel premium metals contracts.
Last year, Canada’s Northern Graphite successfully began demanding a premium from customers who wanted guaranteed supplies of battery metal in North America. And earlier this year, Teck Resources (NYSE:) began selling a slightly processed type of concentrate known as concentrate to Aurubis, according to a source with direct knowledge. The deal is not exchange-rate dependent and guarantees Aurubis a steady supply of ESG-compliant concentrate that it converts into copper for sale to the auto industry. Teck declined to comment. Aurubis said it sees “the path to a greener copper industry as a shared mission across the entire value chain, which must be respected from the raw material supplier to the end consumer.”
Customers currently face no penalty if they don’t source sustainably, but they increasingly face reputational risk. “The question really is for the automakers: Are you happy with something that might be cheaper or are you willing to pay the premium knowing that it was sourced sustainably in the right way?” said Michael Scherb, CEO of Appian Capital Advisors (NASDAQ:APA) , a private equity firm that invests in mining companies.
‘Weathering the Storm’
BHP, the world’s largest miner, said this month it would suspend operations at its nickel mines in Australia due to “significant economic challenges resulting from global nickel oversupply”.
The move was a blow to a company that had bet unsuccessfully that its customers would be willing to pay a premium for nickel produced in a country that mines sustainably. BHP has warned that nearly two-thirds of Australia’s nickel market is at risk of being shut down amid a market price slump caused by a 153% surge in nickel in Indonesia from 2020 to the end of last year driven by Huayou Cobalt and others — production that environmentalists say was partly driven by the ripping apart of the country’s vast rainforests.
U.S. officials are encouraging Jakarta to improve mining standards in the country. Huayou Cobalt did not respond to a request for comment.
Australia’s nickel industry is among the cleanest in the world, largely because of how it handles carbon emissions, according to data from environmental, social and governance consulting firm Skarn Associates. The data shows that nickel processed in Indonesia emits more than five times as much carbon as production in Australia, with emissions from China’s nickel industry nearly seven times worse than Australia’s. Albemarle, the world’s largest lithium producer, laid off staff in January amid falling prices driven in part by increased production from Yongxing Special Materials Technology and others in China. “If there’s no incentive above current prices, you’re not going to get the investment you need to build the domestic (U.S.) supply chain,” said Eric Norris, who oversees Albemarle’s lithium operations.
Fernandez, the State Department official, expects increased demand for metals to offset the current “global oversupply,” but he acknowledged that mining companies are in a bind at the moment.
“We have to find ways to weather the storm,” Fernandez said.
Transparency: Since January, world leaders have taken a series of steps to offset China’s market dominance.
President Joe Biden imposed tariffs in May on essential metals produced in China, saying that “metal prices are unfairly low because Chinese companies don’t have to worry about profit.”
Australia’s Treasurer Jim Chalmers said in February that governments should consider supporting “a differentiated international trading market for resources produced to higher ESG standards”.
Canada’s Deputy Prime Minister Chrystia Freeland said in April that Ottawa would fight the dumping of critical minerals by China, Indonesia and other countries.
The Chinese mission to the United Nations did not respond to a request for comment. Last year, China banned exports of graphite and other minerals. Several U.S. senators from both parties have said they are considering legislation to provide price insurance for minerals, similar to the government’s crop insurance program, according to Senate aides. Such a move would guarantee miners a price for their minerals, regardless of market conditions. Automakers have been moving cautiously as the trend toward green premiums develops, aware that consumers are reluctant to pay more for electric vehicles. General Motors Co., the largest U.S. automaker, believes that base metals should be produced sustainably but doesn’t want to pay a premium because of concerns that it won’t be able to compete with Chinese rivals, according to a person directly involved in the company’s metals procurement. GM told Reuters it requires suppliers to meet high standards, a position echoed by Volkswagen AG. VOWG_p.DE, BMW AG.BMW AG.BMW AG.BMW AG.BMW AG.BMW AG.BMW AG. Tesla (NASDAQ:TSLA) and Ford (NYSE:F), which are building a nickel processing plant in Indonesia with Huayu Cobalt and PT Vale Indonesia, did not respond to requests for comment. Exchanges The London Metal Exchange said it has received “positive market feedback” on its move to price sustainable nickel. Its partner Metalshop, a German online metals auction platform, sold 144 metric tons of low-carbon nickel in May and plans to publish a similar price when there are more transactions.
Benchmark Mineral Intelligence, a UK-based company that provides pricing and data for critical minerals, has launched green metal pricing contracts, where each price is determined by how well a miner adheres to 79 criteria that Benchmark says reflect high production standards. “You’re not going to be able to guarantee a non-Chinese supply of some minerals unless you’re willing to pay a premium for that product,” said Benchmark’s Daniel Fletcher-Manuel. That’s the message Jervois has been pushing, to no avail. “Ultimately, ESG has a cost,” said Bryce Crocker, the company’s chief executive. “It’s a cost that’s worth it.”
