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11 January 2023

Key players and future outlook for Cobalt

Cobalt is a shiny, silvery-gray metal that is heavily used within advanced electronic manufacturing and industrial applications, particularly within most portable batteries and superalloys used to make gas turbines. The metal’s scarcity and geographical concentration continues to create problems for manufacturers, as it has done throughout history. It has also historically been used to create a deep blue pigmentation, something surprisingly rare in nature.

Throughout the last year, the price of cobalt metal, has followed other metals like lithium and nickel in having periods of extreme volatility. The price of cobalt has always been volatile because of its extreme scarcity and comparatively low volume output, with an abundance of only 25 parts per million (ppm) in the earth’s crust, compared to iron’s 50,000 ppm. High-purity Cobalt metal is currently around $50,000 a ton on the London Metal Exchange and has hovered around that price for the last couple of months. The metal peaked throughout the spring of 2018 reaching over $90,000 a ton and more recently in April of 2022 reaching over $80,000 a ton. Global cobalt output was around 170,000 tons in 2021, with an expected growth rate of around 5% annually, but this will need to increase dramatically as demand for EVs continues past its inflection point and begins to increase dramatically.

Glencore is by far the largest producer of cobalt globally, producing close to 45,000 tons of cobalt in 2022 (±2,000), making a return to pre-covid levels last seen in 2019. The company expects to expand production to 60,000 tons per year in 2024, recognizing strong future demand from EV batteries and cobalt’s current role as a largely non-substitutable manufacturing component. Over the last couple of years Glencore has entered into agreements with companies including GM and FREYR to secure long-term cobalt supply agreements.

Second in cobalt production is the Eurasian Resources Group (ERG), which produced over 20,000 tons of cobalt in 2021. The company is 40% owned by the Kazakh Government and has a checkered past, having been brought private in 2013 during investigations from the UK’s serious fraud office. The company has recently resumed mining at its Boss Mining open pit operations in the Democratic Republic of the Congo (DRC) with the primary aim of increasing cobalt output, which was temporarily put into care and maintenance in 2019. This operation produces a variety of cobalt compounds including sulfates, oxides, and hydroxides, as well as copper as a byproduct.

China Molybdenum, a partially state-owned company is the third largest producer of cobalt globally, with a vast majority of its output going to China. The company owns an 80% stake in the Tenke Fungurume in the DRC and announced plans in late 2021 to roughly double output at the plant through a $2.5 billion investment set for completion this year. The company is also one of the world’s largest producers of tungsten, molybdenum, and niobium. Rare metals used in high-end industrial manufacturing including medical equipment.

Cobalt demand in the future is going to depend on two key factors, the rate of EV uptake, and the rate of removal of cobalt from rechargeable batteries. The former is quite simple, EV demand will continue to grow as charging infrastructure rolls out, and as OEMs shift production facilities from ICE vehicles to EVs. The last couple of years have shown that worsening economic conditions have little effect on EV demand, leaving supply chain issues as the primary limiting factor in future production capabilities.

Cobalt has been a problematic supply component for EVs for a long time. It’s incredibly expensive and has serious ESG risks attached when mined from the Congo, and when mined from elsewhere like Canada or Australia it becomes prohibitively uneconomical. Competing on price with exploited children wielding pickaxes is a near impossible task without subsidies.

The rise of LFP batteries – particularly in China – threatens to drastically cut cobalt requirements later in the decade and beyond, particularly as energy density concerns are addressed through the implementation of more expansive charging networks, charging rate improvements, or improvements in the batteries themselves so the chemistry competes more favorably with NMC batteries. Adding Manganese and other metals also allows NMC style batteries to make do with less Cobalt in them.

All of these factors threaten cobalt demand in the long-term, but they are intangible and difficult to predict with the changing policy landscape, EV demand in North America has changed drastically since the implementation of the inflation Reduction Act (IRA) for instance. There is still significant room for policy change over the next couple of years, particularly within Europe as it needs to compete with the US for battery manufacturing capacity.

Broadly, we don’t think companies have done enough to address cobalt demand for the next few years up to 2025/2026, as EV demand is likely to increase cobalt demand significantly in the short term because of the comparative immaturity of LFP batteries and demand within North America where energy density is more important. But if cobalt prices remain high, it will further incentivize the shift to LFP and LMFP batteries that is being spearheaded by China, effectively shortening the window of profitability for cobalt extraction – as once it is no longer necessary for EVs – demand will begin a sustained descent as a result of alternatives becoming available.