ELECTRIC VEHICLE WATCH: Cobalt prices rise as consumer interest mounts

Metal Bulletin and sister title Industrial Minerals track the latest news and developments in the electric vehicle (EV) sector, and monitor the price moves in cobalt and lithium – essential raw materials for the all-important batteries.

Metal Bulletin and sister title Industrial Minerals track the latest news and developments in the electric vehicle (EV) sector, and monitor the price moves in cobalt and lithium – essential raw materials for the all-important batteries.

Consumer enthusiasm for EVs is growing as carmakers prepare to bring battery-powered cars into the mainstream.

As a result, traders are getting excited about cobalt and lithium, the raw materials crucial for the production of EV batteries, with lithium prices at multi-year highs and cobalt set for a bull run.

After resisting gains for much of the year, cobalt prices have been rising steadily since the beginning of June.

Speculative interest in the blue metals has been growing and traders seeking to cover their forward tonnages are encountering increasingly higher prices.

Metal Bulletin-assessed high-grade cobalt prices stand at a range of $12.10 to $12.90 per lb, in warehouse, up over 14% from the beginning of June.

And low-grade cobalt is trading in a range of $11.95 to $12.55 per lb, compared with $10.60 to $11.20 at the beginning of June.

Such a strong rally in prices in a seasonally-quiet period for end-use demand has further bolstered confidence among traders, and Chinese speculators are now entering the market through physical metal purchases and cobalt-related equities.

The flurry of interest in cobalt lies in forecasted bullish growth in the battery and electric vehicle sectors.

Supply overhang might have kept cobalt prices down in the first half of the year, but market participants polled by Metal Bulletin are bullish in their outlook, anticipating cobalt prices at $15 per lb, or as high as $20, in the next 12 months.

Their forecasts are rooted in the anticipation of EV growth.

As cobalt trader Nick French noted recently, battery output is expected to rise sharply over the next few years, with the battery industry expected to consume 140,000 tonnes of cobalt in 2020, up from 50,000 tonnes in 2015.

Battery demand has been behind more than 70% of cobalt demand growth in the past five years, and with EV demand in its relative infancy, growth should exceed global GDP growth for the foreseeable future, analysts at Macquarie say.

With organic growth, battery usage is expected to account for an increasing proportion of cobalt demand, exceeding 50% in 2016, compared with 28% in 2010. Analysts at Chinese information provider Antaike say over 77% of cobalt consumed by China was used in batteries last year.

When Tesla’s Model 3, a mass-market saloon, went on sale in April, it attracted $14 billion in pre-orders in its first week.

The Tesla Model 3 went on sale in April 2016.

The company plans to produce 500,000 cars per year in 2018, with estimates output could be close to one million by 2018. And each electrically-powered vehicle were require a battery using lithium, graphite and cobalt.

Tesla last week opened its 5.9 million sq foot gigafactory with the capacity to produce 35 gigawatt hours of lithium ion batteries per year by 2018, to match its ambitious growth targets.

And there are numerous other parties taking an interest in the EV and batteries sector.

Samsung Electronics has purchased a $450 million stake in Chinese EV manufacturer BYD, to boost its own semiconductor business for cars, and to take advantage of the burgeoning EV supply chain.

At Volkswagen’s recent AGM, the company confirmed it would invest billions of euros in an “electrification initiative second to none in the industry”

The pledge includes the launch of more than 30 EVs by 2025, with EV sales to reach between two and three million vehicles per year by 2030, accounting for 25% of the automaker’s total sales volume.

Three electric car models will be available under Volkswagen’s Audi brand by 2020.

Even London’s black cabs are set for a makeover. Zhejiang Geely Holding Group Company, the owner of the London Taxi Company, recently secured $400 million to finance the electrification of its taxi fleet.

The funds will be used to develop the hybrid battery powered TX5, due to go on sale in 2017, in time for the 2018 deadline by which all new taxis in the UK capital will need to be emission-free.

Strategic stockpiles
In addition, the USA has started to stockpile cobalt, pointing again to the minor metal’s strong demand profile.

According to a report from Reuters, the US Defense and Logistics Agency (DLA) has started to stockpile cobalt chemical compounds used in EVs, as it now considers the materials to be strategic.

Between October 2015 and the end of May 2016, the DLA purchased 150kg of lithium cobalt oxide (LCO) and 440kg of lithium nickel cobalt aluminium oxide (NCA), according to Reuters.

The stockpiling agency is authorised to buy a total of 300kg of LCO and 1,080kg of NCA by the end of the financial year on September 30.

The US Geological Survey advised the DLA to add the cobalt compounds to the National Defense Stockpile for the first time in 20 years in 2014.

LCO and NCA, precursors to lithium-ion batteries used in EVs, were deemed “strategic and critical materials for which stockpiling was deemed prudent in order to mitigate future supply chain risk”, the US Geological Survey told Reuters.

The DLA’s mandate to stockpile cobalt runs from the 2014 fiscal year until the 2019 fiscal year.

There are some risks for cobalt, however. Bad press surrounding the blue metal, particularly Amnesty International’s report concerning the industry’s dependence on artisanal mining, could further push manufacturers towards cobalt-free batteries.

Some Chinese battery manufacturers, such as BYD, seem to be favouring lithium-iron-phosphate battery technology, which provides cheaper $ per kWh costs, leaving cobalt exposed to substitution risk. 

Lithium carbonate spot prices range between $21 and $23.50 per kg on a cif China basis, up from $6-7 per kg last autumn, according to an assessment by Metal Bulletin sister title Industrial Minerals.

Analysts at Jefferies recently said a significant drop would require a significant change in lithium’s demand profile, which looks extremely unlikely given the outlook for the EV sector.