Battery Prices Likely Heading for the Ceiling After Congo Raises Royalty Rate

The Democratic Republic of Congo has declared cobalt a “strategic” substance, nearly tripling the royalty rate miners will have to pay on it. According to a governmental decree, miners will now pay 10 percent in royalties to extract the element.

While we’ve previously warned of the likelihood of a global supply shortage elevating the price of batteries, it seems this will occur only after the Congo taxes the crap out of it. This is the second time cobalt has seen a royalty hike since June, when the region increased the previous 2 percent royalty to 3.5 percent.

Besides the looming prospect of a reversal in the falling price of EV batteries, a spike in the price of cobalt is already ruffling some feathers.

According to Reuters, Congolese Prime Minister Bruno Tshibala signed the decree late last month despite fierce opposition from leading investors. Both Glencore and China Molybdenum have lobbied against mineral tax hikes under a new mining code adopted earlier this year.

As the region is responsible for more than 60 percent of the world’s cobalt production, even minor changes can seriously influence the final cost of batteries. Foreign investors have claimed tax hikes under the new code will hamper further investment and have threatened to challenge some parts of the Congo’s new regulations in arbitration.

While this will no doubt impact the price of electric vehicles, a temporary cobalt surplus has managed to keep prices down through the second half of 2018. This surplus is expected to decline sharply as EV adoption continues and mines begin to scramble to meet demand. Most analysts expect to see cobalt trading at record prices again by 2020 and continue upward from there. The increase in royalties really only serves to accelerate the timeline.