LME WEEK 2018: Cobalt – will there be enough?
At the inaugural LME Focus Day, part of this year’s LME Week in London, Fastmarkets’ head of base metals and battery research, Will Adams, discussed the supply and demand outlook for the cobalt market over the next five to seven years.
While there is unlikely to be any shortage of cobalt over the next two to three years, the market is expected to gradually shift toward being in a deficit again in subsequent years, Adams told attendees of the LME Focus Day’s session on electric vehicles (EVs) and battery materials on Thursday October 11.
A significant supply response is underway in the cobalt market, Adams said, with the ramp up of Glencore’s Mutanda operation in the Democratic Republic of the Congo (DRC) and the restart of the trader-miner’s Katanga project, also located in the DRC.
“In addition, ERG’s Roan Tailings operation in the DRC is also starting up. All three are expected to continue to ramp up production over the next year or two. In sum, this should see production [at these three projects] rise by approximately 40,000 tonnes per annum, from around 102,000 tonnes in 2017 to 144,000 tonnes by 2020,” he added.
The increased production follows supply cutbacks in the 2012-2015 period when commodity prices slumped, with a run-up in prices since 2016 encouraging the restart of some production capacity as well as the bringing online of new projects.
Fastmarkets’ assessment of low-grade cobalt prices fell to a low of $9-11.15 per lb in December 2015 from $13.75-14.35 per lb in June 2015, before recovering to $14.25-14.95 per lb by December 2016 and running up to a peak of $43.70-44.45 per lb in April this year. Prices have since retreated in the face of oversupply.
“The result is a one-off supply response that involves a considerable amount of cobalt, which in the short term will lead to a state of oversupply. As such, Fastmarkets expects the supply/demand balance to switch into a supply surplus in 2018, having been in a deficit in 2016 and 2017,” Adams said.
“We are not overly concerned about the surplus as down the road supply is likely to become extremely tight again. With demand for lithium-ion batteries expected to see rapid growth on the back of the adoption of EVs and the rollout of energy storage systems (ESS), Fastmarkets expects the extra cobalt supply will be snapped up by the downstream users, whether they be battery manufacturers or the OEMs (original equipment manufacturers) making EVs, consumer electronics, or the other industrial users of cobalt. Funds and investors may also elect to buy stocks given the bullish supply outlook.”
The two fastest streams of growth in cobalt demand are EVs and ESS, according to Adams.
The number of EVs worldwide is expected to grow from 1.3 million units in 2017 to 17 million units in 2025, which in terms of gigawatt hours (GWh) is an increase from 27GWh to 834GWh. This reflects growth in cobalt usage from around 9,500 tonnes to 75,000 tonnes over the same period, Adams said.
For the ESS sector, Fastmarkets expects consumption to grow from around 2GWh in 2018 to 224GWh in 2025, which translates to around 990 tonnes of cobalt currently to 29,600 tonnes in 2025.
Such a rapid pick-up in demand is expected to put tremendous pressure on cobalt producers; the average cobalt mine produces around 2,000 tonnes per year, so significant investment will be needed to ensure that there is enough supply, according to Adams.
“That said, the high prices of late have seen an increase in scrap entering the market and with a considerable amount of old scrap believed to be around, contained in the batteries of old mobile phones and laptops, there could be considerable inflow of scrap to help alleviate any shortage,” he added.
Demand for cobalt is currently picking up on two fronts: from organic growth as more EVs and ESS are sold and as battery chemistries change to meet charging needs. Chinese subsidies and range anxiety have led to the need for batteries that can provide a longer range between each recharge.
This has led to a shift in battery chemistries to higher energy density batteries.
Whereas the first generation EV batteries were lithium-iron-phosphate (LFP) and lithium-manganese oxide batteries (LMO), which contained no cobalt, the second generation batteries do contain cobalt. There are two types of second generation batteries, nickel-manganese-cobalt (NMC) and nickel-aluminium-cobalt (NCA) – the latter the type favored by Tesla.
The partial but growing shift from LFP/LMO to NMC/NCA in passenger vehicles means that more battery cells now contain cobalt, which is bullish for cobalt, especially as EVs and ESS are also seeing organic growth.
“First generation batteries will still be used in some smaller passenger vehicles, in buses and trucks, but NMC and NCA are the battery of choice for most passenger vehicles, especially battery-only vehicles that need the longer drive range,” Adams said.
“The more advance NMC/NCA batteries become, then the less cobalt will be used per battery cell. This is at face value a negative for cobalt demand, but we think the rise in organic growth will not mean it is a negative – indeed such is the likely tightness that we expect industry will have to be very economic with how much cobalt they use per item,” he added.