Western resource nationalism policies signal cobalt investment opportunities
Resource nationalism in Western economies was expected to be a major driver of investment in the cobalt supply chain in the second half of this decade
Early examples of this have already been seen in the introduction of the Inflation Reduction Act (IRA) by the US last year and the Critical Raw Materials Act (CRMA) put forward by the EU Commission earlier this year.
For the IRA and CRMA legislations to be effective, however, robust integrated supply chains will need to be separated from China, which will create investment opportunities in the West.
Consequently, the financial grants provided by the two acts were giving incentives to companies to divert investment away from China over the second half of the decade, Fastmarkets was told at the conference.
Fastmarkets’ daily price assessment for cobalt, standard grade, in-whs Rotterdam, was $13.75-15.00 per lb on Tuesday May 16, down from $13.75-15.05 per lb previously.
One source at the conference spoke about how their company was trying to reduce dependence on China to 50% for battery materials, compared with the current 95%. This was to be achieved over the next 18 months in favor of a supply chain that was “friendly to the US and the EU bloc.”
The IRA in particular made this “US-friendly” supply chain its clear focus. The legislation requires that a percentage of the raw materials used in electric vehicle (EV) batteries must be sourced from North America or qualifying countries elsewhere, beginning at 40% in 2023 and rising to 80% after 2026. Similarly, the EV batteries must be assembled and manufactured in North America, starting at 50% in 2023 and rising to 100% in 2028.
But with China accounting for 72% of global cobalt refining capacity in 2022, according to Fastmarkets Research, it will be no small task for the US and the EU to develop their own integrated supply chains.
With aggressive policy targets in place for both the EU and the US, these chains will have to be developed swiftly. US President Joe Biden has announced a goal that 50% of all new vehicles sold in the US should be electrically powered by 2030. The EU, meanwhile, intends that all new car and van sales will be zero-emission vehicles by 2035.
Cobalt refining bottleneck
Panelists at the conference discussed one issue that could affect the transition to a zero-emissions market, namely the cobalt refining capacity bottleneck outside of China.
“Refining capacity is the first [aspect] that investment needs to go into, because it’s the quickest de-risked approach to meeting policy targets,” Kaleigh Long, founder and chief executive of Westwin Elements, said in a panel discussion on the global drive for raw materials.
The US has yet to have an operational cobalt refinery, although projects were scheduled to be up and running in the next couple of years. The EU was further forward in that regard, with the EU and Turkey accounting for 9% of global refining capacity, according to Fastmarkets research. Fastmarkets’ research team is due to publish an updated figure later this month.
“First and foremost in the cobalt market, the bottleneck is refining… There is geological supply to create long-life technology… You want fully integrated, robust [supply] chains,” Joe Kaderavek, chief executive officer of Cobalt Blue, said.
“It makes a lot of sense for electric vehicle supply chains to be looking at the EU and the US. The policy targets make for healthy demand forecasts, with incentives in place to support market development,” a chemical manufacturer said at the conference.
Consequently, the US has made resource allocation a priority, signing a Memorandum of Understanding in December 2022 with the Democratic Republic of Congo (DRC) and Zambia to develop a supply chain for the EV sector.
The DRC is the world’s largest producer of cobalt, accounting for 74% of global supply in 2022, according to Fastmarkets research.
Indonesia is a developing major cobalt producer by way of mixed hydroxide precipitate (MHP). It has tried to agree a limited free-trade-agreement with the US to avoid such material falling outside of the IRA criteria.
Indonesia accounted for 5% of the global supply of cobalt in 2022, but has the potential to increase cobalt production by 10 times by 2030, according to a report published at the conference.
“Prices have fallen further than we expected in [the second quarter], below our previous quarterly forecast,” Fastmarkets analyst Robert Searle said.
“Bearish sentiment remains in the upstream intermediates market, which is expected to continue to weigh on metal prices in the second half of the year. But we still expect an improving macroeconomic climate and recovering demand from the EV and consumer electronics sectors to support metal prices in the second half,” he added.
Policies encouraging investment in battery material supply chains
“For now, the Inflation Reduction Act continues to support strong EV growth in the US, and the EU’s response with the Critical Raw Materials Act and legislation to support EV penetration rates will continue to support cobalt demand from the EV sector,” he said. “But the sheer size of the Chinese battery and EV market means that, until we see a recovery in Asia, prices could remain subdued.”
“Prices [for cobalt] are very low at the moment,” a trader at the conference said, “with summer still to come. But look a few years ahead and I see good support from EVs and [the] aerospace [industry]. Why sell now if you can store it?”
In a panel discussion, Peter Handley, a key representative for the EU Commission, called for a “global critical materials club” of producers and consumers to be set up to encourage collaboration.
“You need to have that conversation with both sides of the market to work out what can be done to sustainably ramp-up supply and improve [environmental social governance] scores, rather than forcing Western standards onto other countries,” he said.
A DRC government representative at the conference discussed the point of resource nationalism, in response to a question from a member of a panel audience.
“We have had Europe and China asking for material directly. When you have two elephants fighting, the grass is the one being hit - and that’s the case here,” Paul Mabolia Yenga, coordinator of Cellule Technique de Coordination et de Planification Miniere (CTCPM), said.
“We are the ones with material, but you are the people with the technology to help,” he added.
The next few years will provide a key indicator for the future of cobalt and electric vehicles, and market participants at the conference agreed that investment in the supply chains will be critical.
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