Susan van den Brink, RenéKleijn, Benjamin Sprecher, Arnold Tukker
Cobalt is a critical material used in many different sectors, from the metal and graphics industry to electronics to healthcare (Cobalt Institute, 2019). It is an essential component of the lithium-ion batteries used in almost all laptops, mobile phones and electric vehicles (McCullough and Nassar, 2017) – which several studies find will lead to a significant increase in demand for the material. Deetman et al. (2018) predict demand for cobalt will increase by a factor 10 to more than 20 towards 2050. Tisserant and Pauliuk (2016) expect a lower growth in cobalt requirements, but still foresee a quadrupling of demand in the next four decades.
The aim of this study is to analyse the vulnerability of primary cobalt production to supply chain disruptions, and to evaluate supply risks associated with the increased attention for responsible sourcing. The authors achieve this by geographically explicitly mapping the cobalt supply chain and companies, and applying supply risk indicators such as the diversity of supply, by-product dependency, political and environmental risks, and company linkages. For reasons of data availability, 2016 was taken as the base year.
The paper finds that the risks for supply chain disruptions are high for the following reasons:
- The cobalt market is highly concentrated, with more than half of the cobalt mined in the Democratic Republic of the Congo, and almost half of the cobalt refined in China.
- Mining in Congo can also be problematic from a social point of view. Several reports by NGOs and academic studies provide evidence of cobalt-mining related to human rights violations and environmental negligence in the Katanga region of the Democratic Republic of the Congo (e.g. Amnesty International, 2019; Cheyns et al., 2014).
- Besides industrial mining, an estimated 15–20 % of the total cobalt production in the Democratic Republic of the Congo comes from artisanal mining (BGR, 2017). The Centre for Research on Multinational Corporations (SOMO) estimated that 40,000 children work in underground tunnels, without protective equipment.
- Almost all cobalt is mined as a by-product of copper and nickel.
- Several studies have suggested that the supply of by-products is inherently riskier than that of host metals, because their recovery is contingent upon the economic health of their corresponding primary commodity market (Hayes and McCullough, 2018; Sprecher et al., 2017b).
- Political stability in production countries is considered to be medium to very weak.
Disruptions in the supply chain can cause shortages, and subsequent rapid price increases.
The paper also aims to advance the state of the art in contemporary criticality assessment, through addressing two identified research gaps:
- Production concentration is only measured on the country (and sometimes company) level. However, for minor metals a disruption at even a single mine can have an impact on the overall price of the mineral and the supply chain. Therefore, this study examines the supply concentration not only on the country level, but also geographically maps individual mines and refineries.
- Linkages between companies can impact supply chain disruptions. Therefore, the paper explores shareholder structures of the cobalt industry at the company level. The authors apply network analysis to identify important companies in terms of position and influence in the supply chain, and, in case of a disruption, to determine how this could impact the overall supply chain resilience.
The paper concludes that the risk of supply chain disruption is high. The supply of cobalt is strongly concentrated, both at the mining and refining stage, 98% of cobalt is mined as a by-product of copper and nickel, and there is a weighted weak governance performance in the mining countries and almost as weak governance performance in the refining countries.
There are also some factors that reduce the supply risks, however. Though the mined and refined production is concentrated on the country level, the concentration of the individual mines, refineries and companies remains under the threshold of a concentrated market. In addition, the estimated 80 artisanal mines diversify the mined supply. While the mining of cobalt can have severe environmental impacts, the relatively low environmental performance of mining countries could indicate a lower supply risk as cobalt deposits with high environmental impacts may still be developed or expanded.
To increase supply chain resilience, the authors recommend diversifying cobalt production. More than 150 cobalt deposits are currently not mined, some of which some are in countries that currently do not have cobalt mines. Another option would be to explore deep sea mining. Finally, artisanal mining can play an important role in the diversity of supply. Efforts to ensure socially and environmentally sustainable artisanal mining could increase supply chain resilience. Ways to achieve this include the development and improvement of artisanal and small- scale mining (ASM) sustainability certification schemes, and due diligence practices that promote responsible sourcing.