Categories:
Energy
/
General Market Commentary
Topics:
General Energy
/
General Market Commentary
Commentary: Apple and the vertical transformation of mining
Earlier this month, Bloomberg reported that Apple Inc. was in direct talks with an undisclosed mining company to secure long-term cobalt supplies to support the mounting demands of the company’s power hungry device lineup.
Cobalt, a hard, silver-grey metal once used for jewellery and paints, is the primary component for today’s lithium-ion batteries. Valued at over US$37 per lb. — an increase of 100% from just the year before — the metal is a coveted chalice for power hungry manufacturers seeking footholds in the ever narrowing space.
The potential deal would mark one of several negotiated by vertically integrated manufacturers (VIMs) in recent months to secure supplies of metals required to satisfy expanding production targets. BMW, Volkswagon and Samsung are just some of the industry giants rallying to align themselves with raw material producers.
This transformation will likely transition well beyond power-centric commodities into other non-renewable resources — metal or otherwise — and may inadvertently have positive consequences beyond increased shareholder value.
Firstly, metal commodity prices are notoriously fickle with cycles becoming increasingly sporadic, each cycle contracting and swelling in greater frequency and amplitude than the one before.
In contrast, demand for consumer products like cellphones, home electronics, and in recent years, electric vehicles, has either remained steady or even increased through much of the economic downturn of the past decade.
By shortening the supply chain, commodity prices — and by extension, mining investment — are likely to see reduced volatility in the wake of more predictable supply and demand forecasts.
Secondly, while pre-emptive stakeholder engagements and CSR outreach programs are a mainstay of the mining business, hip trendsetters like Apple, Samsung and purveyors of all things shiny and new, who have traditionally commanded unwavering brand loyalty in spite of numerous public snafus (e.g. compare the number of glittery Apple logo bumper stickers proudly displayed on rear fenders, versus say, Glencore), may now find themselves under increased scrutiny.
Currently, over 60 percent of the world’s cobalt is produced from the Democratic Republic of the Congo where evidence of child labour in mines has cast mounting scrutiny on the underlying socio-economic costs of the supply chain.
VIMs exposed to those types of legal and ethical liabilities will quickly bridge the public’s perception disconnect between source material and end-product.