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RPT-EXCLUSIVE-Swiss-based trader Telf to sell ERG's cobalt in 3-yr deal

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* ERG’s cobalt will be sold mostly to Chinese companies -source

* China’s GEM signed a 1-year deal to buy ERG’s cobalt -sources

LONDON/JOHANNESBURG, Jan 11 (Reuters) - Swiss-based commodity trader Telf AG will sell cobalt produced by Eurasian Resources Group’s operation in Democratic Republic of Congo, equivalent to 10% of global supply in 2021, three sources with direct knowledge of the matter told Reuters.

Under the deal, expected to run from 2021 to 2023, Telf will market 18,000 tonnes of cobalt for ERG this year - worth some $657 million at London Metal Exchange prices.

Demand for cobalt, a key ingredient for the rechargeable lithium-ion batteries used to power electric vehicles, crumbled as coronavirus lockdowns hit auto sector activity in the first half of 2020. Demand has since bounced as growth recovered, led by China.

Cobalt is a major focus for metals markets due to expected accelerating demand in coming years as governments and consumers clamp down on fossil fuels such as diesel and gasoline with targets for cutting emissions.

A source with direct knowledge of the matter said most of the cobalt hydroxide produced by ERG’s Metalkol operation in Congo would be sold to Chinese companies.

“Metalkol’s hydroxide will be sold to CATL (Contemporary Amperex Technology), GEM and other Chinese refineries that supply battery materials,” the source added.

Another source said ERG’s cobalt would also be sold to companies in South Korea, Japan and Europe.

Both Telf and Luxembourg-headquartered ERG declined to comment.

Two sources at GEM said the company had signed a one-year deal to buy ERG’s cobalt from Telf, with one adding that the deal was for 3,000 tonnes.

CATL did not respond to requests for comment.

China dominates the global supply chain for electric vehicles.

Production at Metalkol started in the fourth quarter of 2018, according to ERG’s website, which also says that at full capacity Metalkol may eventually produce 24,000 tonnes of cobalt hydroxide a year.

ERG is currently aiming to ramp up annual capacity to 20,000 tonnes.

By far, the world’s largest producer of cobalt is Glencore with guidance for around 35,000 tonnes of output this year, much of it from Congo. Privately-owned ERG at full capacity is expected to become the second largest producer.

Cobalt is a byproduct of copper in DRC, which is expected to produce 75% of the global total estimated at around 140,000 tonnes this year.

In other countries cobalt is mostly a byproduct of nickel.

Attempts to cut the cobalt content of electric vehicle batteries have to an extent succeeded, but are expected to be more than offset by strong demand growth over coming years as auto makers ramp up electric vehicle production.

Consultancy Benchmark Mineral Intelligence (BMI) expects cobalt demand for electric vehicle batteries to rise above 90,000 tonnes in 2024 and to nearly 120,000 tonnes in 2025 from below 30,000 tonnes last year.

BMI also sees demand from electric vehicles accounting for nearly 53% of the total in 2025 from around 24% last year. (Reporting by Pratima Desai, Zandi Shabalala and Tom Daly; editing by Veronica Brown and Kirsten Donovan)

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