Expert: Cobalt Market to Stay Volatile After Record Mine Output in 2022

Cobalt Investing
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INN sat down with Andries Gerbens, physical trader at Darton Commodities, to talk about current cobalt market dynamics.

Cobalt prices have corrected sharply from 2022's peaks on the back of higher supply and a downturn in demand.

Last year, cobalt mine output saw its largest increase ever, jumping 23 percent year-on-year, Darton Commodities says in its 2023 Cobalt Market Review. The Investing News Network recently spoke to Andries Gerbens, physical trader at the firm.

“Following a high price environment in 2021 all the way through early 2022, the (cobalt) demand outlook was extremely strong, which encouraged a lot of mining companies to try and maximize their output,” he explained.

“A significant increase in cobalt mine production in the Democratic Republic of Congo (DRC), combined with a significant increase in mixed hydroxide precipitate production in Indonesia, added a lot of additional cobalt units to the supply base.”

In 2022, the DRC remained the top cobalt producer, increasing its share of global mining to 76 percent despite an escalation in output from Indonesia. Companies operating in the African country — including Glencore (LSE:GLEN,OTC Pink:GLCNF), Zhejiang Huayou Cobalt (SHA:603799) and ERG — contributed to the jump.

Post-COVID-19 lockdowns and disruptions, there was a bit of a “catch-up” phase in cobalt supply, with overall production climbing by 42 percent over the 2020 to 2022 period, according to Darton Commodities data.

“Larger-than-expected supply and sort of disappointing demand developments, or at least demand not growing at the rate that people were generally expecting, has led us to the situation we're in right now,” said Gerbens in an interview on the sidelines of this year's Battery Gigafactories Europe event, hosted by Benchmark Mineral Intelligence.

Even though cobalt prices have seen some recovery, the outlook has “dramatically changed” in a short period of time. “But as always with cobalt, that's the current situation, but then things can change again very, very quickly,” he said.

Between 2022 and 2025, Darton Commodities is forecasting that global mined output will grow an additional 39 percent.

China’s grip on the cobalt market

A topic that continues to gather attention is China’s dominance over certain parts of the lithium-ion battery supply chain, and the cobalt market is no exception. In 2022, China refined a whopping 91 percent of the world’s cobalt chemical supply and accounted for 76 percent of global cobalt refined production.

When it comes to mining, China doesn't contribute as much from domestic resources, with output reaching only 2,200 MT in 2022, data from the US Geological Survey shows. However, in its latest report, Darton Commodities notes that even though the DRC is the top cobalt-producing country, seven of the top 10 cobalt miners are China-owned.

Could this number increase even more? “There's still a growing interest, within China itself, possibly even from the refiners, to integrate into mining, and therefore it would only make sense for them to be looking at DRC operations,” Gerbens said.

With recent developments, and with the approach that the DRC government is taking towards some Chinese mining companies right now, he sees bit of a change taking place.

“It may not be as straightforward as it was before, where it was automatically assumed that if there's a new asset most likely it's going to be Chinese owned, or it's going to be the purchase by a Chinese company,” he said.

Security of supply and reducing dependence on Asia when it comes to the battery supply chain have been top of mind for governments around the world. Legislation such as the US Inflation Reduction Act and the European Critical Raw Materials Act are just two examples of the efforts being made to build resilient value chains.

“I would imagine that these will help support diversification in the sense that previously certain mining projects, either in North America or in Europe, were not financially viable," he said. "Now, under these new acts, the potential support that might come from that is probably going to be supportive for the development of a mining and refining industry outside the well-known places that we've seen today."

What’s ahead for the cobalt market?

When it comes to what’s ahead for the cobalt market, volatility is the one thing investors should keep in mind.

Darton Commodities expects consumer spending to pick up, which could see the portable electronics segment recover.

“Battery supply chains have been destocking for an extensive period of time, with cobalt prices having come down as much as they have,” Gerbens said. “Once demand does start picking up, then I would imagine ultimately that's going to have an impact on raw material prices, and companies will then be looking to replenish some of those supply chain inventories … which could have an amplification effect, where demand intensifies quite a bit in a short period of time.”

Looking over to electric vehicle (EV) industry demand, the rise of lithium-iron-phosphate (LFP) batteries is set to continue.

“The previous perception that LFP was very much limited to the Chinese market … that doesn't seem to be the case anymore in the sense that I think LFP ultimately will become a more mainstream chemistry outside of China,” he said. “LFP is probably going to take a bit of a bigger share than people believed up until now.”

Having said that, Gerbens believes nickel-cobalt-manganese (NCM) will continue to play a key role in EV batteries.

“I think the majority of the EVs that are going to be sold outside of China will still have NCM chemistry,” he said. “The overall volumes are still large enough for NCM chemistry to still have a very dominant role in the EV battery.”

For investors interested in cobalt, Gerbens said he has been following what’s happening in the cobalt metal market.

“I think the metal market is more and more its own dynamics right now, and we're actually not seeing that sort of oversupply on the metal side, with demand having been surprisingly strong this year from the alloying side.”

Don't forget to follow us @INN_Resource for real-time updates!

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.

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