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Ethical metals: Cobalt traders adopt blockchain to gain 'automated trust' as demand from EVs sector grows

Brussels/London/Singapore — Demand for clean, responsibly-sourced metal for use in electric vehicle batteries and smartphones has spawned a new market for technology companies: offering blockchain services to traders to track metals' provenance, particularly for cobalt.

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One data management company, DLT Labs, says it hopes to see as much as 10% of the market for cobalt shift to use of blockchain within 24 months, in processes that could involve sealed bagging, electronic tagging, weighing, recording and GPS tracking of batches of cobalt at all transactional stages.

International pressure is there because currently around two-thirds of the world's cobalt supplies come from the Democratic Republic of Congo, where non-governmental organizations such as Amnesty International have reported that mining conditions are poor and some small-scale mines use child labor.

Efforts to mine cobalt elsewhere may be hampered by high arsenic levels in some deposits: indeed analysts forecast output from the DRC, where mineral quality seems assured, could rise to around 75% of global production by 2021 as producers, including Glencore, ramp up new production.

The metals sector is taking the issue seriously, given the expected high demand for electric vehicle batteries from customers concerned about being perceived as both sustainable and ethical.

Cobalt is still a key component in such batteries, although battery developers are working on ways to reduce how much is needed and eventually to avoid it entirely.

Cobalt prices have leapt in part due to growing concerns around its origin: prices for the minor metal jumped 129% on the London Metal Exchange last year, and have pushed even higher in the first half of this year before sinking back.

The LME's response to the growing concern has been to introduce new guidance from early 2019 to ensure only responsibly sourced metals can be traded on its platform. This will include implementing new rules to ensure that all of its listed brands comply with a selected standard and certification regime where appropriate.

Blockchain for commodities: Trading opportunities in a digital age

S&P Global Platts explains the technology, examines the projects, and looks at the challenges and opportunities ahead as blockchain enters a critical development phase.

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OECD-COMPLIANT PLATFORM

"Organizations are not just experiencing digital transformation, they are also achieving ethical transformation. Unquestionably ethical supply chains are not just the right path, they are the only path," said Loudon Owen, Chairman and Chief Executive Officer of DLT Labs, which has set up a joint venture with Canadian company Cobalt Blockchain (COBC) to commercialize a blockchain platform named Mintrax to track metals and minerals from source to end-user.

The companies claim this is the first enterprise-grade blockchain platform specifically built to ensure compliance with the Organization for Economic Cooperation and Development's due diligence guidance for sourcing minerals ethically.

While COBC is pioneering use of Mintrax, with tracking to start early in the fourth quarter, the platform may be offered to anyone trading, buying, auditing or otherwise dealing in cobalt from the DRC and eventually to other minerals inside and outside the DRC, including base and precious metals and diamonds. "We are very excited by the response we have been receiving from the industry about the ability to use blockchain to deliver ethical cobalt," DLT Labs, with offices in Canada, India and Japan, told S&P Global Platts. "We plan on tracking 40,000 tons with COBC in our first year."

COBC's cobalt metal trading operation will be a collaborative effort with due diligence program designer BetterChain, making use of IBM's Hyperledger Fabric blockchain open source framework.

"Our aim is for the Mintrax blockchain platform to be the benchmark in automated trust, assuring security, transparency and immutability of the certification record for ethically-sourced minerals," COBC's president and chief operating officer, Lance Hooper, said as he launched the joint venture in August 2018.

CHINA ON BOARD

Traders in China, a major buyer of cobalt for making batteries, told S&P Global Platts they are looking forward to seeing blockchain make the supply chain more transparent.

Nanjing Hanrui Cobalt, which imported more than 5,000 mt of cobalt metal equivalent from the DRC in the year to June 2018, said it considers the LME's plan to eventually ban metals without proof of ethical sourcing "rational and necessary."

China's largest cobalt refiner, Huayou Cobalt, along with mobile phone company Fairphone, has partnered with supply chain auditor RCS Global's Better Cobalt.

The Better Cobalt pilot is a data-generating, non-profit project, which monitors the production and trade of cobalt in the DRC. Using trained agents stationed at the mines, equipped with a smartphone application linked to a digital data reporting platform, the pilot aims to deliver up to four electronically-traceable supply chains originating from artisanal and semi-mechanized mine sites.

Cobalt produced at these sites is checked against the highest internationally ratified responsible sourcing standards while also specifically focusing on child labor and human rights abuses, to facilitate systemic improvements, the company says, citing the importance of compliance with the Cobalt Refiner Assurance Framework Protocol.

RCS is also developing an Industrial Blockchain Platform for use in cobalt sourcing from the DRC, to be built on the IBM Blockchain Platform using Hyperledger Fabric, in partnership with electric vehicle and mining operators.

FULL BATTERY TRACKING

Another planned user of the same technology is UK tech company Circulor, which is working with American Manganese and other partners on a pilot blockchain project to track the entire lifecycle of an electric vehicle battery. American Manganese's business activities include recycling spent electric vehicle lithium ion rechargeable batteries.

Circulor plans to tag and track batches of raw materials from mine to consumer, creating an immutable audit trail for all parties involved and improving efficiency.

"Costs can be saved in two areas -- compliance cost avoidance is a medium term possibility when provenance using ecosystems like ours become more prevalent, but the most immediate cost saving will come from more efficient trade financing made possible by digitising the ownership and custody of assets," said Circulor CEO Douglas Johnson-Poensgen.

DLT Labs, which sees "a lot of interest" from mining companies in Africa and Asia, echoes that the move to blockchain is driven by "both need (end-customer demands of ethically sourced minerals) and economics (high costs required to manage compliance requirements with current technology and potential loss of business to a competitor that provides products/raw material that are ethically sourced)".

"Ethical mining is good business so we hope to see widespread adoption throughout the industry and even in other metals and minerals," the data management provider says.

--Siobhan Hall, siobhan.hall@spglobal.com

--Diana Kinch, diana.kinch@spglobal.com

--Xinyue Zhang, xinyue.zhang@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com