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Global cobalt supply deficit 'not as dire,' analysts say

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A copper and cobalt mine located in Kolwezi, Democratic Republic of Congo, is pictured above. Plans to expand cobalt mines in the DRC have helped narrow a forecast supply deficit for the metal used in rechargeable batteries.
Source: Per-Anders Pettersson/Getty Images News via Getty News

A market deficit for cobalt is narrowing as the world's leading producers of the prized metal expand production to meet the spike in demand for batteries used in electric vehicles.

Amid the surge in EV sales this year, hunger for cobalt drove major producers to announce plans to increase output at multiple mine sites in the Democratic Republic of Congo and balance the market. Some battery- and EV-makers seek to find alternatives to cobalt, which can be costly or loaded with allegations of human rights abuses. But the metal will likely continue to play a key role in rechargeable batteries in cars and on the grid, at least in the short term.

The market is expected to move into surplus in 2022 after suffering an estimated shortage of 1,800 tonnes of refined cobalt this year, according to S&P Global Market Intelligence's latest forecast published Sept. 22.

"The situation is not as dire as it was," Caspar Rawles, head of price assessments at Benchmark Mineral Intelligence, said in an interview. "The supply chains have responded, and I think the cobalt picture does look a lot better."

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Global refined cobalt production is expected to rise 38.5% between 2021 and 2025, reaching 223,000 tonnes, according to Market Intelligence, thanks to the expansion and restart of multiple production sites. Leading cobalt producers Glencore PLC and China Molybdenum Co. Ltd. are expected to boost production at mines in the DRC in the coming years. About 68.6% of the world's 139,480 tonnes of cobalt supply last year came from the DRC, followed by 4.2% from Australia and 3.3% from the Philippines.

Switzerland-based Glencore could revive production at its copper-cobalt Mutanda mine in the DRC Market Intelligence reported on May 26. The company declined a request for comment, but it addressed the mine in a recent earnings call.

"We are starting the ramp-up, starting to come back into production [at Mutanda]," Gary Nagle, Glencore CEO and director, said on the Aug. 5 call. "We will take our time with the ramp-up to ensure we can match the supply that comes from Mutanda with the demand growth that we see in the market."

Glencore stopped operations at the Mutanda mine and placed the facilities on care and maintenance at the end of 2019 after cobalt prices crashed in response to increasing production from China and oversupply. Glencore produced 27,400 tonnes of cobalt in 2020, according to the company, making it one of the world's leading producers of cobalt.

China Molybdenum, the second-largest cobalt producer in terms of volume, plans to pump $2.51 billion into its 80%-owned Tenke Fungurume copper-cobalt mine in the DRC by 2023, increasing cobalt production capacity by 17,000 tonnes. In 2020, the mine's cobalt output totaled 15,436 tonnes, according to Market Intelligence data. Gécamines SA, a state-run company, holds the remaining 20% of the Tenke Fungurume mine. China Molybdenum did not respond to a request for comment.

"The supply chain seems to have done enough for now to keep things balanced," Benmark's Rawles said.

Softened demand, but prices still high

Demand for the silvery-blue metal has eased in recent months, helping shrink the gaping supply-demand imbalance analysts expected.

In recent months, a semiconductor chip shortage dampened the need for cobalt, which is used in electronics and certain batteries. The continued spread of the COVID-19 pandemic and hiccups at a port in South Africa have continued to upend several parts of the supply chain as well, according to Market Intelligence analyst Alice Yu.

In July, China imported over one-fifth less cobalt from the DRC compared to the same month in 2020.

But supply in 2021 cannot meet demand, and prices for the metal have rallied.

Cobalt prices will be an estimated 50% higher in 2021 than in the year prior, according to Market Intelligence data. Prices could cool down in 2022, as supply chain constraints ease and increased output from expanded mine projects in the DRC begin making a splash in the market.

Cobalt thrifting

Still, analysts foresee another supply deficit cropping up in 2025, and cobalt's use in next-generation EV batteries is far from certain. Some battery manufacturers have sought ways to wean themselves off the metal due to chronic supply chain constraints, high prices and alleged human rights abuses associated with its mining and processing.

"In the last decade, there was a lot of concern around cobalt, which is a specific material that was in relatively short supply," said Haresh Kamath, director of energy storage and distributed energy storage resources for the Electric Power Research Institute, an electric utility-funded think tank. "A lot of [manufacturers] had trouble getting ahold of it, and it was very expensive. A lot of companies who researched cobalt-free batteries or reduced the amount of cobalt used."

Manufacturers have made this pivot away from the expensive material by adding more nickel to their batteries or investing in battery chemistries that do not require any cobalt or nickel at all.

Yet cobalt provides stability and safety in batteries. Even as some manufacturers eschew the metal in favor of other materials, cobalt will still likely play a sizeable role in battery supply chains for the foreseeable future, industry experts said.

"Despite the trend of cobalt thrifting in vehicle batteries, we forecast total cobalt demand to rise 74% between 2020 and 2025 to 229,000 tonnes from rising [plug-in] EV sales, offsetting the impact of lower cobalt intensity," Yu said.

In its most recent annual report, the largest EV manufacturer in the U.S., Tesla Inc., also said cobalt will "continue to be an important material in the short term."

Cobalt's use in EV batteries globally is forecast to surge to 97,203 tonnes by 2025, about 293.8% higher than in 2020. However, higher uptake of low- or no-cobalt batteries could alter cobalt demand and shift forecasts, Yu said.