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Cobalt prices to rise as demand-supply deficit widens: analysts

Highlights

Deficit could reach 36,000 mt in 2025

Mutanda delay a key upside risk

Demand to be driven by batteries for EVs

London — Global cobalt prices are expected to trend higher in the coming years due to a more solid demand outlook, particularly from the electric vehicle (EV) sector, while slowing mine supply growth is expected to result in a widening deficit between demand and supply, according to speakers at the Cobalt Institute's "Cobalt in the Green Recovery" conference May 18.

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Roskill senior market analyst Ying Lu said that while the price is expected to rise over the next few years, this is likely to be more gradual, rather than binary ups and down over short periods as seen over the 2017-18 period when prices reached $44/lb.

"We think that the situation is relatively different because now we see a more maturing market with more stability," Lu said.

According to S&P Global Platts data, the cobalt metal price was at $20/lb IW Europe May 18, while cobalt hydroxide was at $19.75/lb CIF China.

CRU senior analyst Harry Fisher said that the overall market balance is expected to remain relatively well balanced over the next couple of years, but from 2024 the deficit could potentially reach 12,000 mt, as demand growth outpaces supply.

This deficit is expected to grow further to up to 36,000 mt in 2025 and widen further thereafter, assuming no further investment in production.

Fisher said that 70% of supply growth to 2025 is expected to be driven by the Democratic Republic of Congo (DRC).

"Toward 2024-25 there is a decline in year-on-year growth due to a lack of new projects in the pipeline, and that is risking medium- to long-term supply growth unless we see development and investment in new mining projects," Fisher said.

He added that China would remain the main (70%) contributor to global refined production and would continue to drive production growth with just under 60% of total growth to 2025.

"We retain our view that the refining sector won't be a bottleneck in the market ... Our view is that the mine part of the supply chain is where the tension issue may lie," Fisher said.

Mutanda key upside risk

He said that one of the key upside price risks was Glencore's Mutanda mine in the DRC, as it accounted for a significant chunk of medium-term supply growth and it was uncertain when it would come back online.

He said CRU had initially expected this before the end of 2022, but this was seeming more unlikely with no solid announcements yet.

Glencore's lead cobalt trader David Brocas said in an earlier conference session that Mutanda would be brought online once there was more certainty of consumer demand in the market, while CEO Ivan Glasenberg said the previous week that it might come online in the next 18 months.

Fisher said that artisanal supply in the DRC and the new L'Entreprise Générale du Cobalt (EGC) regulations were both upside and downside risk factors to price forecasts, given how closely related artisanal supply and flexibility were to the price and its volatility.

"With much greater regulation from the EGC on both production and refining and marketing of artisanally produced cobalt, this might potentially risk the future flexibility of this part of the sector," he said.

However, he said it remained to be seen how stringent the EGC regulations will be and how much impact they would have on traditionally artisanal swing supply.

Demand driven by EVs

Demand was set to be driven by electric vehicle growth, with CRU forecasting EV market penetration to rise from around 4% in 2020 to about 5% globally in 2021 and then grow further in the medium term and beyond 2025, when CRU expects EVs to reach cost parity with internal combustion engine vehicles.

Fisher said one of the downside demand-side risks was cathode chemistries.

However, he said that while there had been a shift away from higher nickel-manganese-cobalt cathodes recently due to safety issues, CRU still sees a future for cobalt in EV batteries.

"There is huge growth potential from the EV market and those cathode preferences will make a slight change to the overall demand trend, but not have a fundamental impact on cobalt demand growth. It might just slightly alter the overall magnitude of that growth," Fisher said.

Brocas said that while battery makers might look to replace high-priced cobalt, it had to be replaced with other metals, which also have costs and their own issues, such as higher carbon footprints, among other challenges.

"So yes, cobalt prices might rise if demand exceeds supply, but it is also down to downstream customers to manage these prices with supply agreements," Brocas said, adding that customers should ensure the creation of sustainable long-term hedging tools, commit to a battery chemistry that contained cobalt, and recognize the sustainability of DRC cobalt due to its low CO2 footprint.