From continued growth in demand and market share for electric vehicles (EVs) and the increased reliance on energy storage systems, cobalt is key in the global transformation to new energy sources. But there is a lack of diversity in the supply chain for battery manufacturers and automakers. Roughly 70% of mined cobalt comes from the Democratic Republic of Congo (DRC) and over 70% of cobalt processing occurs in China.
Logistics and shipping disruptions are still a key issue and high prices for cobalt remain despite a bearish sentiment in the second half of 2022. In response to supply chain disruption, high battery material prices and the desire to move to a circular economy, there is an even greater need for the recycling of cobalt for EVs.
We take a look at some of the key factors at play in the cobalt market over the next ten years.
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1. EV adoption growth will continue to drive cobalt demand
Cobalt demand from fully electric vehicles (xEVs) became the largest consuming end-use sector for cobalt in 2021. There have been a number of headwinds discussed in the future usage of cobalt within the lithium-ion battery industry due to ESG concerns and volatile pricing. In 2022, the growth in EV sales using lithium iron phosphate (LFP) batteries saw the chemistry represent 30% of total EVs in the global market.
Despite this growth, cobalt demand from the EV sector grew at 33% year-on-year in 2022. Over the forecast period, xEV cobalt demand is expected to grow at a compound annual growth rate (CAGR) of 14% driven by significant unit sales growth, as the preference for higher energy density, longer-range nickel manganese cobalt (NMC) EVs in Western markets remains. For now, we do not foresee cobalt being engineered out of the lithium-ion and EV space.
2. The DRC and Indonesia set to form the bedrock of future cobalt mined supply
The traditional cobalt mined supply base in the Democratic Republic of Congo (DRC) will retain its position over the forecast period as the major global supplier. In 2022, mined production from the DRC represented 74% of the global total. Major brownfield expansions and greenfield developments in the next three years will further cement this position in the short term. As well as developments in the traditional African copper-cobalt belt, Indonesian production as a by-product of nickel mining will see significant growth in the next ten years.
The successful commissioning and ramp up of HPAL units in the Southeast Asian country will see its cobalt footprint grow from 4% in 2022 to 22% by 2033. By the end of our forecast period, the DRC and Indonesia will represent 80% of total global cobalt production.
3. Growth of cobalt refining and processing capacity outside of China not yet significant enough to reduce its hold on market share
China remains the global hub of cobalt processing and refining, producing 75% of global metal and cobalt salt in 2022. Despite efforts through legislation and material sourcing requirements, announcements for processing projects outside of China remain limited in comparison. Over the forecast period, significant additions in China compared to planned refining capacity in the rest of the world is set to see China retain its position as the global supplier of refined cobalt products.
Incentives and continued efforts to diversify and localize supply chains around the world will need to increase dramatically to see market share shift away from the traditional processing base.
4. Challenges remain for US and Europe as they look to localize supply and build out cobalt processing and mining capacity
Challenges remain in the development of European and US cobalt supply chains. Over the forecast period, the gap between mined supply and cobalt demand from xEV is expected to grow in these regions. This will increase the reliance of OEMs and battery producers to import metals. The regulation within the US Inflation Reduction Act is expected to lead to new mined and processed projects however, total capacity that we are confident of coming online is limited.
The recent passing of the European Commission’s Critical Raw Materials Act is targeting issues surrounding permitting and lengthy development stages in the region that has hindered growth in the European cobalt footprint. For now, getting greenfield sites approved and running remains a challenge, and low cobalt prices combined with inflationary pressures continue to squeeze the economics of Western projects.
Over the forecast period, secondary supply through scrap and end-of-life battery recycling is expected to play a significant role in both regions as they look to develop circular economies for battery metals, reducing the reliance of sourcing material from the traditional base in the DRC and growing Indonesian industry.
5. A growing global cobalt surplus in the short- to mid-term will keep prices below recent major highs
Recovering output growth following shutdowns in 2020 and a slowdown in cobalt demand from key end-use sectors like consumer electronics saw the global market enter a surplus last year. Prices were bearish through the second half of 2022. Logistics disruptions leading to parts shortages also meant constrained EV production and weaker cobalt demand. Significant planned capacity additions in the DRC and Indonesia are expected to widen this surplus in the short term, adding further pressure to cobalt pricing.
Cobalt’s future balance will not be completely determined by its own market dynamics. The outlook for copper and nickel is that of rapidly increasing demand as requirements for the global energy transition ramp up. In the EV sector, a growing shift towards high-nickel, lower-cobalt loadings are likely to mean cobalt remains well supplied. Longer term forecasts for nickel and copper are set to drive production increases in cobalt as a by-product, while developments in primary cobalt mines remain small scale.
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