Cobalt caught in the commodities cycle

Cobalt has slid into a downcycle in 2023 to date as demand growth slowed and supply increased, but industry participants and analysts say the tide will soon turn.

The cobalt price has plunged since a burst of demand from electric-vehicle makers caused a run-up in 2021 and 2022. The London Metal Exchange cobalt cash price was $32,978.50 per metric ton on Sept. 11, down 59.7% from the peak price of $81,900/t on March 11, 2022, data from S&P Global Market Intelligence shows.

Cobalt's boom times have been slowed by the mass adoption of no-cobalt iron batteries in China, a major EV supplier and consumer, and efforts by non-China carmakers to reduce the cobalt in their batteries. Reducing the amount of the blue metal contained in batteries allows for lower costs and reduces reliance on producers in the Democratic Republic of the Congo (DRC), which has been accused of labor and environmental violations, including human rights violations.

But nickel-manganese-cobalt (NMC) batteries are higher performance than non-cobalt batteries. And while the amount of cobalt in cars may still shrink, the massive number of EVs needed to replace internal combustion engines is expected to ensure steady demand for years to come.

"Going forward, NMC still does have an important role to play [in the EV industry] even if it is at a smaller share of the total market than initially anticipated and certainly outside of China, where driving range is of critical importance," Andries Gerbens, a trader and cobalt specialist at Darton Commodities, told Commodity Insights.

Cobalt slack

Cobalt has been well supplied to the global market, though demand has grown at slower-than-expected rates.

The DRC is expected to supply 72% of the world's mined cobalt in 2023 while increasing production by an estimated 41,974 metric tons for the year, according to a recent Commodity Insights outlook.

Even as cobalt miners have been boosting production, sales of cobalt-based batteries have slowed, particularly in China, the largest global EV market.

China increased production of lithium-iron-phosphate batteries by 50.3% in the first seven months of 2023, four times the growth of cobalt-based battery chemistries in that country, according to a Commodity Insights analysis.

Battery and car manufacturers outside of China have also begun moving away from cobalt due to the allegations of labor and environmental violations within the DRC's cobalt industry, as well as to reduce supply chain dependence on one country.

"A series of events in the past three years also showcased the fragility of a concentrated supply chain: container shortage, trucking shortage, port congestion, weather-related events, riots, etc.," Alice Yu, a senior analyst at Commodity Insights, said in an email response.

Companies try to cope

The slowdown in demand growth has Glencore PLC contemplating reducing cobalt production while further increasing stockpiles in the second half of the year to keep prices within a certain margin, Yu said in the August report.

The weakening price and slower demand growth have created headwinds for new projects seeking investment. One example is Fortune Minerals Ltd.'s Nico cobalt project in northern Canada, which needs additional funding to advance.

"From capital market interest, we've definitely been impacted by the weak cobalt price and the general environment," Troy Nazarewicz, investor relations manager at Fortune Minerals, told Commodity Insights. "On the flip side of that, you've got more secular understanding, not only from governments but industry groups, that are looking to secure supply over a longer time."

Bounce back expected

Analysts estimate that cobalt is simply in a normal mining cycle in which underinvestment will be followed by a deficit and rising prices. Global EV demand for cobalt is expected to reach 165,303 metric tons in 2027, more than double the 89,140 metric tons estimated for 2023, with cobalt supply going into deficit in 2026, according to Commodity Insights.

"In general, the market switch away from NMC technologies is not very large outside of China and, at this point, still is not forecast to be," said Joel Crane, investor relations and commercial manager at Cobalt Blue Holdings Ltd. The junior mining company is developing a cobalt mine in Australia through its subsidiary Broken Hill Cobalt Project Pty Ltd, and production is expected to begin in 2026.

Lithium-iron-phosphate batteries are becoming more popular outside of China thanks to their low cost. However, they are forecast to only comprise about 20% of the US market by 2030, while NMC batteries will cover 50.2% of the US market and NMC-aluminum batteries will make up an additional 15.3%, Commodity Insights analyst Aude Marjolin said in a July report.

"When you get down to it, just the magnitude of growth as we go through the energy transition, regardless of what that actual intensity of cobalt in the battery is, results in significant demand growth," Nazarewicz said.

The pressure to pivot away from cobalt-based batteries "has become a little less" thanks to low prices, said Darton Commodities' Gerbens.

Industry participants expect low prices to stunt investment and prepare the market for the next price increase as demand continues upward.

"There are more and more signs that, in this low price environment, certain production simply is not going to materialize," Gerbens said. "And if that coincides with demand recovery from the portable consumer electronics market and an acceleration in the demand growth from the EV sector, then very quickly, you will see a deficit situation."

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