Cobalt sulphate to rule elevated next 2-3 years as demand for EVs grows

With demand for electric vehicles (EVs) battery growing, prices of cobalt sulphate will rule elevated in the coming 2-3 years. 

However, prices are unlikely to match their 2022 highs in the years ahead due to significant slowdowns in demand growth and expected supply expansions in 2023-24 after which the battery material prices will moderate or decline.

Inventory drops

Cobalt prices have increased by 2.19 per cent year-on-year, while month-on-month they are up over five per cent at $51,995 a tonne. Chinese cobalt sulphate are averaging at $15,467.3 Chinese yuan a tonne year-to-date. 

According to Benchmark Intelligence (BMI), cobalt inventory is 190 tonnes in August against 196 tonnes in July. “The past month saw cobalt prices stabilise after heavy falls in July. Despite some slowing demand for cobalt in China, the IEA forecast we will need 17 new cobalt mines this decade as lithium-ion battery demand surges 10-fold,” it said..

Research agency Fitch Solutions Country Risk and Industry Research said, “China’s accelerated new EVs uptake will largely drive global cobalt sulfate demand in the short to medium term, while increasing EV penetration in Europe in the coming decade.” 

Downside risks

The demand will accelerate policy support for EV adoption in the US and support demand over the longer term. “We highlight downside risks to our outlook on cobalt sulfate demand and prices stemming from increasing cobalt-free (and reduced cobalt) battery rhetoric from battery manufacturers due to ESG (environmental, social and governance) concerns surrounding mined cobalt from the Congro and potential for additional efficiency gains beyond what’s already taken place in the last two years,” the research agency said.

Fitch Solutions said cobalt sulfate (20.5% grade) prices are hovering around $8,597/tonne, while cobalt oxide (72% grade) was around $31,619/tonne. 

These prices mark huge declines off of peaks of $19,865/tonne and $66,246/tonne, respectively, from April and May this year as battery makers have systematically reduced the usage of cobalt in the last two years from over 80 per cent of any given battery’s chemistry to 60 per cent, according to industry sources.

Deficit estimate

UBS estimates, made public on Linkedin by Carlos Vincens, 170,000-tonne deficit in cobalt, which is 42 per cent of the market demand.

BMI said 17 new cobalt mines are required to meet the demand. 

FSCRIR said individual firms may adopt different approaches as more critical minerals are secured via long-term offtake agreements with price floors and ceilings in return for prepayment and financing. “The intensity of price surges in the wake of Russia’s invasion of Ukraine have decidedly accelerated this year, altering demand expectations (and increasing pressure on lithium supplies instead),” it said.

Shanghai lockdown

“Price dynamics shifted considerably in the second quarter as Shanghai experienced a long COVID-19 lockdown, and battery demand growth in China softened,” said Harry Fisher of CRU Group

In 2021, cobalt mine output rose 12 per cent year-on-year to 160,000 tonnes after falling in 2020. Congo remains the top producer, accounting for 74 per cent of global output and 87 per cent of annual growth. 

“In 2022, CRU forecasts that mined supply will rise by over 42,000 tonnes, up 26 per cent year-on-year. “This will mean that the market should certainly be more balanced than in 2021, when a significant deficit developed,” Hughes said. 

He said ramp-up of new and existing projects in Congo and Indonesia will increase supply by 17 per cent, Investing News quoted Hughes as saying.

Strengthening EV sales

Fitch Solutions said current price levels are not higher than average prices in 2020 despite the surprising strength of EV sales since the Covid pandemic began. 

According to Canalys, global EV sales are up 63 per cent at 4.2 million with mainland China accounting for 67 per cent or 2.4 million of the total sales. 

“Sales in 2020 grew 36.5 per cent year-on-year, 79.8 per cent year-on-year in 2021. They are forecast to rise 106 per cent this year with annual sales of hybrid and fully electric vehicles rising from 3.1 million in 2020 to a forecast 11.4 million in 2022. 

“We forecast 10.3 per cent annual growth during 2022-31 bringing that total up to 30.3 million,” the rating agency said. 

“Prices are likely to plateau once demand starts to pick up markedly, and then possibly rise again later in the quarter or in the fourth quarter,” said Hughes.

Substitution for cobalt could result in a loss in product performance or an increase in cost, said Fitch Solutions.

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