What happened in the cobalt market this year? Here’s a look at the major cobalt trends in 2020, from prices to electric car demand.
Click here to read the previous cobalt trends article.
It was another interesting year for cobalt, which like many other metals saw its supply chain being challenged by the coronavirus pandemic.
As 2020 comes to a close, the Investing News Network (INN) is looking back at the main trends in the space, from COVID-19 to discussions about rising electric vehicle (EV) demand and responsible sourcing.
Read on to learn what happened in the cobalt market in 2020, including supply and demand dynamics and what market participants had to say during each quarter of the year.
Cobalt trends Q1: COVID-19 brings uncertainty
The coronavirus pandemic took center stage in the first quarter of 2020, hitting commodities across the board, including cobalt. During the first three months of the year, demand for EVs declined and lockdowns to fight the virus created supply chain challenges.
For Benchmark Mineral Intelligence Head of Price Assessment Caspar Rawles, the key issue in Q1 could be summed up with one word: uncertainty.
“The world is going through an unprecedented situation with an unknown timeline of direct impact (i.e. closures/lockdowns/demand loss) through the peak of the pandemic, and the following recovery period,” Rawles told INN in an interview at the time.
The impact of the pandemic was also felt by producers and junior miners, as they faced challenges such as weaker demand and prolonged lower prices.
In Q1, Roskill recorded closures or scalebacks at 21 operations as a result of the outbreak; that represents US$48 million of lost cobalt production value over Q1 and Q2.
Around 44 percent of this was attributed to Vale’s (NYSE:VALE) Voisey’s Bay operation, which at the time was planned to be offline for up to three months.
“For juniors, it will be a struggle to raise finance for projects given the prospect of a prolonged recession,” Gavin Montgomery of Wood Marckenzie commented at the time.
“We had projected the cobalt market to be relatively balanced this year as the excess stocks that characterized 2019 started to ease off, plus we have Glencore’s (LSE:GLEN) Mutanda mine offline this year. Now we see the market contending with oversupply again as all end-use sectors are impacted.”
In terms of supply, Montgomery said a number of cobalt refineries adopted temporary closures over March and April to contain COVID-19, but most returned to production.
“There were some temporary shutdowns there, but for the time being, business appears largely as normal,” he said. “Export channels through to Zambia and onwards to Durban in South Africa are reportedly operating, albeit with slightly lower capacity and some delays.”
However, the Democratic Republic of Congo’s (DRC) supply was still being hit by coronavirus-driven decisions, with Katanga Mining lowering its 2020 guidance and Chemaf suspending some of its operations. The DRC is the world’s top-producing country for cobalt.
Speaking about demand in Q1, Roskill’s Jake Fraser said buying from end-use markets was largely hit by a slowdown in the need for cobalt sulfate, which is required in lithium-ion battery manufacturing.
He added that this happened due to decreased EV sales domestically within China in Q1, coupled with automakers shutting or slowing down production lines as a result of COVID-19.
Woodmac’s Montgomery agreed, saying EV demand had been seriously disrupted since the start of the year, with a huge contraction in China and overseas, with cobalt demand impacted on all fronts.
“Cobalt demand is also being hit by weaker demand from consumer electronics, superalloys (as the aerospace sector contends with worst conditions in history) and catalysts as the refining sector is disrupted by low demand,” he said.
Cobalt trends Q2: Prices surprise to the upside
The pandemic saw commodities prices plummet and then rebound in the first half of the year, with cobalt taking a hit but experiencing some recovery during the second quarter.
Comparing cobalt’s performance to that of base metals, George Heppel of CRU Group said that cobalt remained relatively strong in the first half of 2020, slipping just 8 percent from the beginning of the year compared to a more than 20 percent fall for base metals like copper.
“This is mainly due to COVID-related supply shutdowns in the cobalt metal sector, most notably Ambatovy, CTT, Voisey’s Bay and Raglan,” he told INN. “These were able to offset lower demand during the lockdowns.”
For Rawles, prices for the metal were performing in line with expectations considering COVID-19.
“Starting in late June and into July, we saw cobalt prices surprise to the upside linked to the ongoing impacts of the lockdown in South Africa in April,” he told INN.
In July, cobalt hydroxide payables, which is the value of cobalt in hydroxide compared with metal, increased by about 10 percent.
“(This) is a huge move in the space of a month — typically we have been seeing 2 to 4 percent moves in the payable month-on-month,” he said. “The increase in feedstock prices has also driven the cobalt sulfate price to increase in China, which we tracked up by 3.8 percent in July.”
Looking at demand in Q2, Heppel said one of the big surprises during the first half of the year was the demand recovery and expansion for the European EV sector.
“More EVs were sold in the first half of 2020 than in the entire year of 2018. By contrast, EV sales in China remain largely at the same level in 2020 as 2018,” he said.
“Europe seems to be the new engine of cobalt demand growth, and we have upgraded our demand forecast accordingly.”
When looking at supply of cobalt during the first half of the year, Rawles said in Q2 that production had remained stable since the initial shutdowns in March and April.
“Our supply outlook hasn’t changed much since Q1. We have seen limited impact to production at the mine site generally speaking, although issues have arisen in getting the cobalt from the mine to refiner.”
The impact of the coronavirus on the cobalt supply chain was mostly felt in shipments and logistics, Rawles explained. Exports from Africa plummeted following the lockdown and are yet to return to normal levels.
“Events like this highlight how disconnected the global industrial metal market and the battery/chemical market in China/Asia can become,” Rawles said. “For a period we saw metal falling at a time when the hydroxide feedstock/chemical market in China was surging.”
Cobalt trends Q3: All eyes on Tesla’s Battery Day
The third quarter of the year was a period of surprises, Rawles told INN once it was over.
Delays in shipments from South African ports and increased demand for cobalt hydroxide in China boosted prices for cobalt.
“In August, we caught the tail end of the impacts of the closures in South Africa linked to COVID-19,” he said. “This led to rising prices, which bled into August and saw tightness around cobalt hydroxide feedstock, which subsequently pushed up prices for refined products.”
This was then followed by a period of relatively limited activity in late August moving into September, when the Chinese State Reserve Bureau (SRB) moved to secure cobalt metal as part of a strategic stockpiling effort for the critical metal, Rawles explained.
“Whilst it hasn’t been officially confirmed, it is widely believed that this was in the order of 2,200 tonnes of cobalt metal,” he said. Yet despite the size of the purchase, prices didn’t react.
“The rumor of the purchase had been circulating for much of 2020 and it had largely been expected by the market. On top of this, industrial demand for metal continues at low levels due to the impact of the pandemic, so in reality the SRB purchase just stabilized prices at a time of low demand, creating a price floor,” Rawles explained.
Aside from the move from China’s SRB, during the third quarter all eyes were on Tesla’s (NASDAQ:TSLA) long-awaited Battery Day, which promised to put the spotlight on the lithium-ion battery supply chain.
At the event, CEO Elon Musk promised battery improvements geared at reducing costs per KWh, increasing range and lowering investment per GWh, all with the goal of making EVs affordable.
It came as no surprise that Musk’s quest to eliminate cobalt continues — he said his company is working on cathode chemistries that have zero cobalt, but challenges remain ahead.
Ying Lu of Roskill sees plenty of incentives for Tesla to engineer cobalt out of its batteries. Those include the geographically limited nature of cobalt supply, along with cost concerns and environmental, social and governance issues.
“So it is not surprising to see that Tesla has announced the plan to produce a novel high-nickel cathode captively without cobalt, although no clear timeline has been announced at Battery Day,” she said in Q3.
Roskill believes the shift towards less cobalt in EV batteries is set to continue in the coming years; however, at least in the short to medium term, the firm also believes that it will remain technically challenging to eliminate cobalt from mainstream chemistries such as NCM and nickel-cobalt-aluminum.
Weighing in on Tesla’s zero-cobalt goal, Woodmac’s Montgomery said Tesla’s recent cobalt supply deals demonstrate quite clearly that the EV maker will need cobalt for some time to come, and thrifting cobalt from cells remains challenging.
Earlier this year, Tesla signed a deal with top cobalt producer Glencore for supply of the raw material. Umicore (OTC Pink:UMICF,EBR:UMI), Samsung (KRX:006400), GEM (SZSE:002340) and SK Innovation (KRX:096770) have also signed deals with Glencore.
Rawles added that Tesla has confirmed it will be increasing battery supply from its cell partners, including Panasonic (TSE:6752), LG Chem (OTC Pink:LGCLF,KRX:003550) and CATL (SZSE:300750) — and potentially adding more.
“These cells are likely to continue to use cobalt-containing cathode, so Tesla will continue to need to secure cobalt for some time to come,” he said. “Ultimately the undersupply we are expecting in the cobalt market outweighs any potential change in Tesla demand.”
Rokill’s Lu agreed, saying that despite the expected decrease in intensity of use of cobalt per unit, the uptake of EVs will still be beneficial overall for cobalt demand in automotive applications.
Lu added that in addition to EVs, the rollout of 5G technology will create more growth potential for cobalt in portable electronics and energy storage systems sectors going forward.
Cobalt trends Q4: Optimism about 2021
The last three months of the year continued to bring news around battery metals and cobalt supply.
Glencore reported that cobalt output was down 37 percent year-to-date at 21,600 tonnes owing to the shuttering of its Mutanda mine in the DRC, while another top cobalt producer, China Molybdenum (OTC Pink:CMCLF,HKEX:3993), also reported output was down 16.7 percent year-on-year at 10,507 tonnes.
In Q4, the Chinese company, which operates the Tenke Fungurume mine in the DRC, acquired a 95 percent stake in the Kisanfu copper-cobalt mine in the African country from Freeport-McMoRan (NYSE:FCX) for $550 million.
“Considering China Moly had the option to buy it for less than 10 percent of the $550 million price tag a few years back it’s a sign of the new trajectory of the cobalt and battery supply chains,” Rawles said following the news. Benchmark Mineral Intelligence forecasts that the battery industry will require a further 100,000 tonnes of cobalt by 2025.
In Q4, the cobalt market also saw another sign that long-term contracts are here to stay after Glencore extended its cobalt hydroxide supply deal with GEM to 2029 for 150,000 tonnes over the 10 year period.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.