LONDON/BEIJING (Reuters) - The London Metal Exchange could remove companies from its list of approved metal suppliers if they fall short of industry standards following an outcry about cobalt mined by children in Africa, three sources said.
The exchange will issue principles for responsible sourcing in coming months and producers will have to show their metal meets industry standards that conform with the new LME guidelines, the sources familiar with the matter said.
“The LME has to be policeman. It can do that by making sure industry standards on child labour and conflict minerals are being met, that there is auditing and certification,” a source on an LME committee said.
The responsible sourcing of metals such as cobalt has come into focus as manufacturers scramble to secure supplies of the key component in rechargeable lithium-ion batteries ahead of an expected surge in electric car sales.
Carmakers such as Volkswagen (VOWG_p.DE) have asked suppliers to ensure cobalt does not come from child labour and concern some of the metal in LME approved warehouses may be tainted has led some consumers to shun its contracts.
While there is no single industry-wide standard for responsible mineral supply chains, the Organisation for Economic Co-operation and Development (OECD) has a five-step framework and the Cobalt Institute is developing its own standards.
To make progress on responsible sourcing, the LME sent a survey to producers in November asking about the sourcing, auditing and certification of metal that can be delivered against LME contracts. Responses were due by Dec. 1.
Most have now responded though stragglers will be given a new deadline, possibly the end of the third quarter, or risk being named and shamed, the sources said.
They said the process of establishing the principles, the adoption of specific standards that have to be adhered to and time to allow producers to meet the requirements could take up to two years, or possibly longer.
The spotlight in has also fallen in recent years on tin, another metal traded on the LME that is used in electronics and can come from conflict zones or artisanal mining areas in Africa.
The LME declined to comment on the survey responses or whether approved metal brands could be removed from its lists.
“The LME is committed to facilitating the implementation of recognised responsible sourcing standards for its listed producers and expects to issue further guidance on this topic over the coming months,” the exchange said in a statement.
Rights group Amnesty International brought the issue to a head with a 2016 report detailing the use of child labour in artisanal cobalt mines in Democratic Republic of Congo and in 2017 it said some major electronics and car companies were not doing enough to clean up their supply chains.
In December, Nanjing Hanrui Cobalt (300618.SZ), the main provider of raw material to LME approved cobalt supplier Yantai Cash, said some of its cobalt came from artisanal mines in Congo and it couldn’t rule out child labour may have been used.
Worries about metal from Yantai Cash first emerged last June and prompted some in the cobalt industry, including sources on the LME’s cobalt committee, to call for it to be suspended from the LME list.
Yantai’s inclusion in the LME approved list at that time created a discount for the price of LME cobalt against prices gathered by Metal Bulletin, a trade publication, sources said.
Yantai Cash joined China’s Responsible Cobalt Initiative (RCI) in December, which was formed by the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters and also includes major end users of cobalt such as Apple Inc. (AAPL.O) and Samsung SDI (006400.KS).
Liu Xiaohan, manager of the international trade department at Yantai Cash, told Reuters the company realised the importance of building a responsible cobalt supply chain and was taking active measures to address the challenges.
Besides joining the RCI, Yantai Cash was developing a responsible purchasing policy, carrying out third-party audits, preparing annual progress reports and making necessary information disclosures, Liu said.
One source familiar with the matter said Yantai’s metal, which is one of nine approved LME cobalt brands, could be banned if the company has not shown good progress by the end of the year in applying the principles the exchange plans to announce.
Yantai’s Liu said any talk of a ban was irresponsible and not grounded in fact.
The LME has not approved any specific industry standards on responsible sourcing as yet.
The OECD’s framework was developed by both member and non-member countries as well as the United Nations Group of Experts for Democratic Republic of Congo.
The OECD also said on its website that it has worked with China’s Chamber of Commerce for Metals and the Ministry of Commerce to develop Chinese due diligence guidelines.
China’s Responsible Cobalt Initiative is calling on companies in the cobalt supply chain to recognise the OECD and Chinese guidelines and align their policies with them.
“The LME won’t set standards, that will be done by bodies like the OECD and the Cobalt Institute, but they can try to make sure standards on the environment are met and human rights are protected,” one cobalt trader said.
The Cobalt Institute is working on what it calls the Cobalt Industry Risk Assessment Framework.
“We expect to be able to roll it out later this year,” said David Weight, president of the Cobalt Institute. “The idea is to identify the risks for members and their customers and provide a framework that gives guidance on how to respond to risks.”
The International Tin Research Institute last year published a code of conduct for its members and the International Council on Mining and Metals also has guidelines on responsible sourcing.
Reporting by Pratima Desai and Tom Daly; editing by Veronica Brown and David Clarke