Cobalt, a key metal in making electric vehicles (EV) batteries, will likely be under pressure in 2023 faced with competition from nickel-based lithium-ion batteries, estimates of surplus supply and projections of slack demand from the electronic sector. 

According to the Trading Economics Website, cobalt prices have declined by over 31 per cent since the beginning of this year. Currently, cobalt futures traded on CME are traded at $35,395 a tonne for delivery in March. The metal’s prices have dropped 57 per cent from the peak of $81,837 witnessed in May last year. 

The ferromagnetic blue metal is a key component for rechargeable batteries and is valued for its stability, hardness, anti-corrosion and high-temperature characteristics.

Shifting chemistry preferences

In September 2022, Fitch Solutions Country Risk and Industry Research, a unit of the Fitch Group, said cobalt prices will moderate in the coming years on changing battery chemistry preferences among manufacturers. 

Analysts say nickel-based lithium-ion batteries have begun to show a higher energy density than cobalt-based batteries.

In 2018, analysts at the Swiss banking group UBS warned that China’s subsidy policy, which targets batteries with longer distances and higher energy densities, encourages nickel-containing batteries. The transformation may be “inevitable”, it said.

In China, prices of cobalt sulphate from which cobalt is derived have dropped following a fall in the rates of refined cobalt and its intermediate products. This is one of the reasons for the sharp decline in the metal’s price.

12% supply increase

On the other hand, global cobalt supply is projected to increase to 2.36 lakh tonnes (lt) — up 12 per cent over 2022 as new projects are expected to be launched to raise supply. 

These include projects of Glencore, China Molybdenum and the Indonesian Nickel and Cobalt Project, said SMM (Shanghai Metals Market) News. One of the factors supporting supply is that Indonesia has now emerged as the second-biggest producer of the ferromagnetic blue metal.  

The other bearish factor for cobalt is the weakening of demand from the electronics sector, while lithium-ion battery chemistry taking over Cobalt-based ones in EVs. However, manufacturers will continue to rely on low-cobalt materials. 

SMM News said cobalt demand in 2023 will increase by 15 per cent to 2.23 lt. The growth in demand is seen as lower than the previous years. 

A decline in the prices of lithium and a drop in demand for EVs in China further aided the drop in cobalt prices, analysts said. 

In May last year, Goldman Sachs warned that the battery metal bull market had peaked and the bull run was over. It said “fundamental mispricing” had generated an outsized supply response well ahead of the demand trend in focus. It projected prices to drop until 2024.