Demand for electric vehicles (EVs) and the global transition to the green economy will boost demand for cobalt, but research firms and analysts are divided over how the blue metal’s prices will behave next year.

Research firm Fitch Solutions Country Risk and Industry Research (FSCRIR) expects the uptrend in cobalt prices to remain over the next 2-3 years. The firm has based its view on demand from battery manufacturers outstripping supply despite a healthy pipeline of cobalt projects set to come online from 2023 onwards.

However, S&P Global Market Intelligence has projected that cobalt prices will drop 8.3 per cent next year as it expects supplies to increase while supply chain bottlenecks are expected to ease.

Fastmarkets has projected cobalt prices to remain elevated next year but lower from current levels. The Trading Economics Website also expects a drop in the average price of cobalt over the next 12 months.

Prices more than double

Currently, cobalt is quoted at $70,500 a tonne with the metal gaining 119 per cent since the start of the year. In July this year, its prices had hit a 3-½-year high of $71,750. Over the past month, the metal has gained over 11 per cent. In March 2018, cobalt increased to a record $95,250 a tonne.

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FSCRIR said over the next three years, cobalt prices will be boosted by a steadily increasing demand, while production will remain stable. The metal’s offtake has been boosted this year by China where production of electric vehicles (EVs) almost tripled to 1.8 million during January-August this year.

China EVs target

Demand for EVs is likely to remain robust in China next year as Beijing has extended subsidies for new EVs till 2022-end. This is part of the Communist government’s plans to increase sales of new EVs to 20 per cent by 2025.

FSCRIR said China will easily achieve the 2025 sales target for EVs. This will be one factor that will continue to support cobalt demand and prices, it said, adding that this will buoy production and investments in new projects.

Stating that the rise in use of EVs in Europe will support cobalt in the longer term, FSCRIR said this will result in production getting a boost in existing projects that are in the pipeline over the next 3-5 years.

Green transition

Pointing out at the use of cobalt for lithium-ion batteries used in EVs, Trading Economics said demand for new EVs will grow amid green transition – an indication of prices ruling firm.

Cobalt, which has outperformed other metals that had sagged after the emergence of the Omicron variant of Covid, is likely to gain throughout the green transition, particularly since it has low exposure to the Chinese property and constructions sector , it said.

Projects in pipeline

Fitch Solutions said though production has remained stable largely, the supply outlook is expected to be unchanged in the short- to medium-term as new projects that are in the pipeline, mainly in Australia, are likely to go on stream from early 2023 only.

Beyond that too, cobalt prices are likely to head higher as demand from EV batteries will rise. “Increased battery demand for autos manufacturing will be accompanied by strengthened demand for cobalt,” FSCRIR said.

While the new projects are still in pre-feasibility state, the other risk for the metal is that mine production is concentrated geographically in a single country – Democratic Republic of Congo.

Production risks

The situation is likely to continue in the coming decades. Political stability, labour issues, corruption and transparency are risks due to mine production being dominated by Congo, which accounts for over 70 per cent of the global production.

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Cobalt, which is mined as a by-product from copper and nickel, is processed into an intermediate, mainly cobalt hydroxide, that is processed into refined cobalt, especially cobalt sulfate, used in batteries and other applications.

Though cobalt is largely mined in Congo, it is exported for refining. “Cobalt refining is also highly concentrated in a single country – China, which will broadly remain the case,” Fitch Solutions said.

China accounts for 66 per cent of global refined cobalt production. Finland is a distant second in the output making up 10 per cent.

Lack of transparency

FSCRIR said the main problem with regard to a smooth supply chain dynamics in cobalt is the lack of transparency in the market and refining capacity outside China being limited.

China’s dominance in cobalt refining will continue to pose problems even if global supply were to be ample. Though there is a shift towards cobalt-free batteries, there could be problems with the performance of a product in which cobalt is substituted.

This will, in fact, boost demand for cobalt, a key component in rechargeable batteries with its main characteristics being stability, hardness, anti-corrosion and high-temperature resistance, Fitch Solutions said.

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A rechargeable battery having cobalt as a cathode improves the energy density power and performs better than batteries without cobalt.

Besides EV batteries, which need to be regularly recharged, Cobalt is used in manufacturing alloys, aircraft, machinery tools and portable electronics, including smartphones and laptops. Automotive applications account for the largest share of 23 per cent in cobalt utilisation.