Cobalt’s price rises highlight shift to battery-driven pricing dynamics

While cobalt prices have shown positive signs of late, there are nuances within the market which highlight the key fundamentals that will likely decide cobalt’s future price trend – which is taking its cues less and less from the industrial metal supply chain.

Cobalt metal prices (cobalt battery metal, min 99.8%, EXW Europe, USD/lb) have risen 15% from the July 2020 issue of Benchmark’s Cobalt Price Assessment to the most recent data published at the end of October 2020. While these price rises seem promising, the cobalt metal market’s outlook in the medium term, at least, has mixed prospects ahead.

News that China’s SRB is stockpiling cobalt metal alongside the recovery in some industrial markets has supported these price rises of late. In addition, metal purchasing by the battery supply chain for conversion to cobalt chemicals in summer, linked to hydroxide tightness, supported prices and drew down inventories of those holding stock of the correct physical form of metal suited to conversion.

However, the prospect of a second wave of coronavirus has now become a reality in many regions, with this uncertainty we are likely to continue to undergo reduced activity in the aviation industry, which is the key consumer of the metal.

Despite these uncertainties, cobalt metal has enjoyed relatively good price performance during H2 2020 to date, but what is really driving this? Such an uncertain demand outlook is usually detrimental for metal pricing – but positive sentiment around battery demand for cobalt chemicals is now the key indicator for future price trends in the market, outweighing the bearish sentiment around metal demand from traditional markets in the near term.

The (electric vehicle) EV market’s H2 2020 recovery has been strong, with China having its best quarter in over 12 months and Europe posting surging EV sales numbers, up over 101% Jan-Feb 2020 over the same period a year earlier.

This coupled with better than expected demand for portable electronics applications, linked to home working, and mobility products such as eBikes, has seen the sentiment for the outlook for cobalt demand from the battery supply chain improve considerably from where it stood at the start of the pandemic in early 2020.

As demand from the battery sector grows, it is natural that it becomes the driving force behind prices and sentiment, as the industry is increasingly focussed on the ‘new world’ of cobalt hydroxide, the battery feedstock to chemical supply chain and the forecasted market balance rather than the ‘old world’ – cobalt metal and the industrial supply chain.

Whilst activity in the metal supply chain will always remain important to the cobalt market, and especially cobalt pricing, shifting sands are starting to see greater and greater emphasis on cobalt hydroxide, and the availability of this feedstock to the battery market.

The transition to a hydroxide dominated prevailing price becomes more evident when you look at the global supply outlook. With only 25% of refined products annually produced in metal form, the balance has been in favour of chemicals for some years, largely focussed on the battery market.

This is even more evident when looking at the supply of intermediate products, with cobalt hydroxide accounting for 70% of unrefined supply in 2020 according to Benchmark’s Cobalt Forecast, with the proportion set to grow in the coming years.

But this growth in market dominance is needed as demand for cobalt from the battery sector takes up an increasing portion of supply. Benchmark’s Cobalt Forecast shows that 57% of cobalt demand will come from the battery sector by the end of 2020, with this is expected to rise to 72% by 2025.

With the cobalt world continuing to evolve to meet this new battery gold rush it is demand for feedstock, cobalt hydroxide, and any perceived tightness as we move in to 2021, alongside positive demand sentiment, that have helped support cobalt prices in 2020.

Benchmark’s cobalt hydroxide prices (100% Co contained basis, CIF Asia) have risen from a low of $21,600/tonne in April 2020, at the peak of concern of falling demand linked to the pandemic, to $27,150/tonne as assessed at the end of October 2020, an increase of 25.7%.

Implied payables over the period have increased from 63.0% to 79.3% in October, as concerns have mounted over hydroxide availability. Initially, the price increase was due to short term supply tightness linked to logistics disruptions from South Africa’s lockdown. But these high prices have remained as the demand outlook for 2021 strengthens, and fears begin to crystalise over long term availability, particularly from industrial Democratic Republic of the Congo (DRC) producers.

But is the outlook for cobalt as rosy as it seems? Not quite.

As automakers grapple with trying to reduce the cost of EVs to appeal to a wider market, alongside improvements in the technology, cheaper lithium iron phosphate (LFP) batteries have seen a resurgence in 2020.

Whilst this LFP growth is primarily linked to EVs in the Chinese domestic market, this is now starting to bleed into the international market with Tesla recently starting to export Chinese made Model 3 vehicles to Europe which contain LFP cells supplied by CATL.

Not only is cobalt facing challenges from LFP but also reducing concentrations in cathode technology as the industry continues its march towards high nickel cathodes, primarily NCM 811. Whilst the timeline for this is far from certain, as automakers still face difficulties with deploying the technology, it is looking to be an inevitability at this stage, and will see cobalt use on a per kWh basis continue to fall.

Nonetheless, these challenges do not spell the end for rising cobalt demand, as the expected growth in sales of batteries in the coming years will outweigh falling cobalt intensities in individual cells. Benchmark forecasts the battery industry will require a further 100,000 tonnes of the mineral by 2025, a 150% increase over the 5 years.


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