LONDON (Reuters) - Mining giant Glencore GLEN.L has signed a major deal to sell up to 20,000 tonnes of cobalt products to a Chinese firm, a move that in turn helps Volkswagen VOWG_p.DE secure car batteries for its shift to electric vehicles, four sources said.

The logo of commodities trader Glencore is pictured in front of the company's headquarters in the Swiss town of Baar November 20, 2012. REUTERS/Arnd Wiegmann/File Photo

The four-year agreement between Glencore and Chinese battery maker Contemporary Amperex Technology Co Ltd (CATL), struck last October, comes as global carmakers race to lock in battery supplies and move away from traditional combustion engines.

The trend was reinforced this week by Chinese-owned, Sweden-based Volvo, which said all of its models launched after 2019 will be electric or hybrid.

READ MORE: Tesla shares drift lower as Model S fails to ace some safety tests

Cobalt is a key ingredient in the lithium-ion batteries used to power electric vehicles (EVs), with sales expected to grow fast in coming years as governments around the world clamp down on polluting fossil fuels such as diesel and gasoline.

“It was a triangular deal where Glencore, CATL and VW got round the table,” said a cobalt trading source. “CATL on their own weren’t willing to commit to such a large quantity so VW said they would buy the batteries (from CATL).”

The contract to supply cobalt hydroxide and alloys, the sources said, was based on cobalt metal prices which at the time were around $28,500 a tonne on the London Metal Exchange CBD3. They have since more than doubled to above $58,000 a tonne.

Glencore and CATL declined to comment on the agreement.

READ MORE: Volkswagen recalls 766,000 VW cars worldwide for brake system update

“There is no guarantee from the VW group to anyone,” said a spokesman for VW’s operations in China.

A source at VW said the carmaker was talking to Chinese suppliers about securing batteries for its EV programme, with those discussions focussing only on supplies and not the possibility of creating a joint venture for battery production.

“CATL is among the suppliers VW is currently talking to,” the VW source said.

Asked whether this was true, the spokesman said: “We are not commenting on our business relations.”

“CAUGHT BY SURPRISE”

Volkswagen, which has been slow to develop battery-powered vehicles, is pushing an electric-car offensive, aiming to launch more than 10 electrified models by the end of next year and is targeting over 30 new battery-powered models by 2025.

Electric cars are a key part of VW’s efforts to draw a line under its diesel emissions scandal as it battles to regain trust among customers and investors.

READ MORE: Australian state picks Tesla to provide grid-scale battery

VW wants to increase electric-car sales to 1 million autos a year by 2025 from a five-digit number at present.

“All the big car manufacturers even early last year were thinking EVs were pie in the sky. They’ve been caught by surprise, especially VW ... That’s when they panicked and did this deal,” a Europe-based cobalt trader said.

“Volkswagen quickly identified raw materials would be an issue and there would be advantages to securing supplies.”

Minerals such as cobalt from Democratic Republic of Congo have been associated with fuelling conflict and child labour, but analysts say Volkswagen would derive a measure of comfort from locking in supplies from Glencore as a listed company answerable to shareholders and regulators.

For Glencore, the advantage was the removal of a massive overhang of inventory capping prices, though some sources did question the timing of the sale.

“To clear that inventory without hurting prices would have taken 12 to 18 months. Selling it in one chunk allowed them to be more aggressive on prices for new production,” a cobalt producer said. “But nobody thought prices would rise so much.”

Glencore this year tightened its grip on Congo’s copper and cobalt resources by buying the remaining stake in one mine and upping its share in another for $960 million. It said the complex had the potential to become the world’s largest cobalt producer.

Morgan Stanley analysts expect global car sales to rise 50 percent by 2050 to more than 130 million units a year. Its base case is for battery EVs to account for 47 percent of that total.

Glencore produced 28,300 tonnes of cobalt last year, dominating a market estimated at 100,000 tonnes. Roughly half was used in batteries for electric cars, as well as products including mobile phones, laptops, digital cameras and cordless power tools.

Cobalt is mostly a byproduct of nickel and copper. The DRC is estimated to produce 65 percent of the world’s cobalt.