04 Oct 2018
The growth of electric vehicles means cobalt is in unprecedented demand. But, with increased supply and growing concerns about mining methods, there may be no sustained lift in the metal's price for five years.
While cobalt prices almost tripled in the 15 months to March 2018, according to London Metal Exchange data, they have since lost half of those gains and are expected to fall further.
Macquarie's metals analysts explore these changing market dynamics.
Cobalt and the rise of electric vehicles
Once viewed as little more than a by-product of copper and nickel mining, cobalt is now specifically targeted by mining companies for the critical role it plays in stabilising the lithium-ion batteries that power electric vehicles.
Demand for the metal rose as global electric vehicle sales reached a record one million units in 2017, an increase of 54 per cent on 2016.
This helped propel the price of cobalt from $US32,500 a tonne at the start of 2017 to a high of $US94,500 a tonne in March 2018.
“Electric vehicles have finally arrived, particularly in China where the government is supportive of electricity as opposed to oil to power vehicles," says Macquarie Group Metals Analyst and European Economist, Matthew Turner.
Electric vehicle sales continue to escalate. In China, which accounts for more than half of the world's electric vehicle sales, 90,000 electric vehicles were sold in August 2018, 64 per cent more than in August 2017. US sales over the same period rose 118 per cent to 36,000.
“The Chinese government is deliberately re-jigging its subsidy policy to favour electric vehicles with larger batteries that can provide a longer range," says Turner. "Using current technology this means more cobalt per vehicle."
Companies that have been looking to reduce or eliminate the use of cobalt in their production will still significantly increase its use over the next five years.
So why have cobalt prices stalled?
The surging demand for electric vehicles won't necessarily translate into cobalt price rises.
The metal has already slipped from its March 2018 highs to around $US60,000 a tonne and Macquarie Group Base Metals Strategist, Vivienne Lloyd, expects further reductions.
The main reason for this, Lloyd says, is that cobalt supply is outstripping the impressive growth in demand.
In late 2017, Glencore PLC, the world's largest cobalt miner, announced it would increase cobalt production at its Katanga Mine in the Democratic Republic of Congo to 34,000 tonnes a year by the 2019 financial year.
“In 2018, the world's entire cobalt market will be around 120,000 tonnes, so this adds a lot of supply to it," Lloyd says. “Other companies are also ramping up production."
Quality to matter more
Ethical concerns about the source of cobalt and how it is being mined are also impacting the market.
“The Democratic Republic of Congo accounts for more than half of the world's cobalt supply and there are genuine human rights concerns around child mining, as well as unsafe and unhealthy practices," Lloyd explains.
Lithium ion battery manufacturers, including Apple, intend to reduce their reliance on cobalt but have yet to find an alternative that can match its battery stabilisation qualities.
“Companies that have been looking to reduce or eliminate the use of cobalt in their production will still significantly increase its use over the next five years," Lloyd says.
While demand for cobalt won't slow, Lloyd expects manufacturers will place increasing importance on its origins, which could impact the use of cobalt mined in the Democratic Republic of Congo.
If this occurs, and electric vehicles continue their strong growth, we could eventually see a golden age for cobalt.