How will oversupply, price declines and LFP boom affect the future? • Emissions credits

According to industry experts, the cobalt market is currently under pressure due to oversupply and slow demand. The pressure is particularly noticeable in cobalt sulfate prices, which are gradually falling, indicating weaker demand. One reason for this is the Chinese passenger vehicle (PEV) sector, which strongly favors lithium iron phosphate (LFP) batteries, which are not based on cobalt.

However, as S&P Global Commodity Insights showed, Platts’ estimated European cobalt price is stable at around $11.00/lb as of October 11thbut with suppressed trading activity.

Let’s look at what the report further reveals about the current and future cobalt market.

China’s switch to LFP batteries weakens the cobalt market

The report was about the cobalt market in China. It highlighted that China’s cobalt metal price had stabilized after hitting a low in late September. From September 25th to November 21st, the price rose by 5.6% and, despite some fluctuations, rose another 2.0% in the month to November 21st.

This recovery was driven by higher raw material costs as cobalt hydroxide prices remained more stable compared to refined cobalt products.

However, margins for cobalt sulfate production using imported cobalt hydroxide were negative in the third quarter of 2023, according to Shanghai Metals Market. This tight margin significantly impacted China’s cobalt sulfate production.

• From January to October 2023, total production fell by 28.1% compared to the same period last year.

The reason for the decline remains the same – a slowdown in the PEV sector. The other important reason is that automakers are switching to lithium iron phosphate (LFP) batteries because they are cost-effective and avoid the use of critical minerals such as cobalt and nickel. This transition has reduced demand for cobalt-containing batteries in China.

Additionally, S&P Global found that cobalt-containing batteries accounted for only 20.6% of vehicle installations in China as of October 2024. This number is a sharp decline from almost 50% in 2021.

Unlocking the role of cobalt in battery chemistry

Cobalt remains an important component in many battery chemistries, providing stability and safety benefits. In 2023, demand for cobalt-containing chemicals increased 15% year-over-year to approximately 500 GWh, accounting for 55% of total battery demand.

While this represents a decline from 63% in 2022, cobalt chemicals are expected to retain significant market share in the medium to long term as demand continues to grow. Let’s explore how experts explain this evolving landscape…

A changing landscape

The Cobalt Institute’s latest report found that cobalt demand was primarily driven by high and medium nickel chemicals, driving this growth in 2023. Chemicals with high nickel content saw a 32% increase, while median nickel content increased by 15%. Meanwhile, low nickel chemicals and lithium cobalt oxide (LCO) saw declines of 11% and 13% year-on-year, respectively.

It was also highlighted

• Demand for cobalt-containing chemicals increased 15% year-on-year to about 500 in 2023
  GWh. This represented about 55% of battery demand in 2023, up from 63% in 2022.

High nickel chemicals also increased their market share to 11%, while low nickel chemicals lagged behind nickel cobalt aluminum oxide (NCA) chemicals for the first time.

These cobalt-free chemicals now account for 45% of global cathode demand, powered primarily by lithium iron phosphate (LFP) batteries. For the first time, LFP overtook nickel-cobalt-manganese cathodes (NCM), achieving a 45% market share, compared to 43% for NCM. Although manganese-based chemicals also contributed, their impact was small.

Beyond batteries, cobalt is needed in aviation, energy storage and electronics and is sustainable due to its recyclability.

Image: LFP vs. NCM: The proportion of NCM battery cells is decreasing

Source: Cobalt Institute report

Pressure to which cobalt is exposed

Despite its critical role in batteries, cobalt faces significant supply chain challenges related to cost, composition and sourcing. Cobalt is expensive, but falling prices have improved the cost competitiveness of battery cells.

The report highlighted that in 2023, NCM and LFP chemicals dominated the global lithium-ion battery market, accounting for 88% of cathode demand. Automakers in North America and Europe preferred NCM batteries because of their higher energy density and longer range, and they were used primarily in high-performance electric vehicles.

On the other hand, LFP batteries have been gaining market share worldwide, particularly in China, where they are a popular choice due to their lower cost and reduced reliance on critical minerals such as cobalt. This also means that although NCM chemicals have high energy density, they are less common worldwide.

Image: 2023 product mix of active cathode materials (CAM) from the large manufacturer. China CAM Suppliers, %

In addition, ethical and environmental concerns regarding cobalt sourcing, particularly from the Democratic Republic of Congo and Indonesia, will be closely examined with a view to sustainability and responsible mining practices.

Cobalt Forecast 2024: Price and Production

As cobalt demand continues to face challenges as automakers favor lithium iron phosphate (LFP) batteries, cobalt-containing batteries are losing significant market share. CMOC expects cobalt-containing batteries to ultimately represent less than 10% of the total battery mix.

This decline in demand is also reflected in the S&P Global Commodity Insights price forecasts below:

• Analysts now expect the cobalt market surplus to increase significantly in 2024, reaching 53,000 tons, more than double previous forecasts.
• The growing surplus has also led to a downward revision in cobalt price estimates, with prices now expected to fall to $12.72/lb by 2028.

Batteries now drive three-quarters of global cobalt demand, making the market very sensitive to changes in cathode chemistry and technology. As demand for electric vehicles increases, the role of cobalt remains crucial, but the rise of alternatives like LFP will reshape the landscape.

The development of the electric vehicle sector in key regions, including the US, China and the EU, will play a crucial role in shaping the future of cobalt. However, with battery technology changing rapidly and economic policy uncertain, the path forward remains unpredictable.

Supply increase from CMOC, Democratic Republic of Congo, Australia and Indonesia

The Democratic Republic of Congo (DRC), Australia and Indonesia are the three major countries that control about 73% of the world’s cobalt reserves. Last year, the Democratic Republic of Congo topped the list with a share of over 70% of global production.

Source: Cobalt Institute

S&P Global forecasts that cobalt production will rise sharply in 2024. This is largely due to Indonesia’s high-pressure acid leaching projects (HPAL) and the increase in production in the Democratic Republic of Congo. Additionally, China’s CMOC, a major producer, has already exceeded its full-year 2023 cobalt production forecast by 21% in the first nine months.

In the first half of 2024, the company secured the position of the world’s largest cobalt producer with an impressive production of 54,024 tonnes, representing a staggering 178.22% year-on-year growth. This increase not only reflects the Company’s central role in the global cobalt supply chain, but also helps meet the increasing demand for battery-grade cobalt.

Notably, CMOC’s production increase is primarily related to its copper-focused strategy, which resulted in increased cobalt inventories.

From this report, we can fairly conclude that cobalt can continue to hold its own as a key material for high-performance batteries, particularly in Western markets. However, its future will depend on balancing costs, sustainability and evolving technology trends.