Cobalt Market Forecast: Top Trends That Will Affect Cobalt in 2023

How did cobalt perform in 2022?

Cobalt prices beat expectations in 2021, surging on the back of increased demand from the EV space. But at the end of that year, the market was expected to transition back into a slight surplus in light of the commissioning of new projects in Indonesia and increased supply from the Democratic Republic of Congo (DRC), the world's top-producing country.

Cameron Hughes of Benchmark Mineral Intelligence told INN the cobalt market performed in line with expectations in 2022.

“The market was forecasted to enter a small surplus in 2022, so it is not too surprising prices are ending the year lower than where they were at the end of 2021,” he commented. “Of course, some things which impacted the cobalt market in 2022 were unpredictable, such as the COVID-19 lockdowns in China.”

China's COVID-19 restrictions were felt sharply across the country's domestic battery supply chain in the first half of the year. Even so, long-term market fundamentals stopped prices from crashing or reaching unprecedented heights, Hughes said.

Jack Bedder of Project Blue also said there were not any major shocks in terms of market performance. “The zero-COVID policy in China ultimately impacted portable electronics demand, which in turn dented lithium-cobalt-oxide demand,” he said.

Most commodities prices sold off sharply in 2022, impacted not only by Chinese lockdown measures, but also by monetary policy in the US and fallout from the energy crisis caused by the Russia-Ukraine war.

“We expect the impact of all these factors to resolve or ease off in 2023,” said Benedikt Sobotka.

“Furthermore, we believe the market has overreacted and is at odds with the actual state of most commodity markets. We anticipate that the demand structure for many commodities is undergoing a fundamental shift driven by the global net-zero transition," added the CEO of top cobalt supplier Eurasian Resources Group.

What is the cobalt supply and demand forecast for 2023?

As 2023 begins, demand for cobalt from the EV industry is anticipated to continue to increase. BloombergNEF is forecasting a fast rise in passenger EV sales, with the number jumping from 6.6 million in 2021 to 21 million in 2025.

“Lithium-iron-phosphate (LFP) cathode technology may limit this increase; however, the current EV penetration rate means demand for cobalt will continue to grow, with nickel-cobalt-manganese technologies remaining the dominant cathode type,” Hughes of Benchmark Mineral Intelligence explained to INN.

Bedder believes investors shouldn't worry about the surge in cobalt-free cathode technologies such as LFP. “As has been the case for the past decade, batteries will continue to drive demand dynamics,” he said. “Cobalt demand in lithium-ion batteries is set to increase at 11.3 percent per year. In the near term, the threat of cobalt substitution is low as this represents a longer-term trend.”

Similarly, Hughes said that although this may be a significant factor in the future, cobalt consumption is still anticipated to increase significantly this decade due to the growth the EV market will experience.

“The rate the EV market is growing is more than enough to offset that decreasing volume of cobalt in cathodes,” he added.

Looking over to other demand segments, usage by the consumer electronics market was limited in 2022.

“(This sector) is showing few signs of improvement in the near term,” Hughes said. “However, later in 2023, this market may recover, which could have a significant impact on the market balance given the size of this industry.”

For Benchmark Mineral Intelligence, sectors such as aerospace, military and medical are anticipated to remain robust, and all of them will help keep the market for cobalt fairly tight next year. “Finally, demand from energy-intensive industries, such as ceramics, which have been rocked by the energy crisis, will depend on where energy costs go moving forwards,” Hughes said.

Looking at how demand has performed in the last few years, Project Blue data shows that cobalt consumption increased by 8 percent per year over the 2013 to 2021 period, although growth stalled between 2019 and 2020 due to the pandemic. “Project Blue expects cobalt demand to continue to grow at a very similar rate (8.9 percent per year) between 2021 and 2027," Bedder said.

The firm expects mine supply to increase by 11 percent per year through 2027 in order to keep pace with growing demand.

“In the DRC, existing producer output is expected to underpin growth, with the ramp-up of Mutanda being a key factor,” Bedder said. Mutanda, the world's largest cobalt mine, closed in November 2019, but was restarted in H2 2021.

“(However,) new mine projects are required if supply is to meet demand," said Bedder, noting that the two key projects to watch are Chemaf’s Mutoshi and CMOC Group’s (OTC Pink:CMCLF,SHA:603993) Kisanfu. “Outside the DRC, I expect the demand narrative to be supportive of new copper-cobalt and nickel projects — but there may be various headwinds."

Excluding the DRC, the main area of growth for cobalt supply is currently Indonesia, where increasing volumes of cobalt contained in mixed hydroxide precipitate are flowing out of high-pressure acid leaching projects.

“Consequently, later in the decade, Indonesia will become the second largest cobalt-producing country in the world,’’ Hughes said. “Elsewhere, further investment is anticipated in North America and countries with a free trade agreement with the US, as OEMs hope to make use of the Inflation Reduction Act (IRA) credits.”

The IRA was signed into law in 2022 in another move to develop the US lithium-ion supply chain. Under the legislation, automakers must ensure that 50 percent of critical minerals used in EV batteries come from North America or US allies by 2024.

“More overseas companies will hope to make inroads into North America to take advantage of the IRA, as well as the growing EV market in this region,” Hughes said. “It is also important to note there is an election in the DRC next year. As mining is a huge part of the country's GDP, it will be a major topic discussed during the election.”

In other supply trends expected in 2023, Benchmark Mineral Intelligence is anticipating that secondary supply of cobalt from recycling will continue to grow, having already increased in 2022.

“Due to increased supply from the DRC and Indonesia in 2023, along with limited demand from the consumer electronics industry and other energy-intensive industries, we expect to see the market in a sizable surplus next year,” Hughes said.

What factors will move the cobalt market in 2023?

Looking at what might be ahead for cobalt prices in 2023, Bedder expects them to fall back a little further in Q1.

“They should strengthen as the year goes on — and as demand picks up,” he said. “But for now I think there is sufficient intermediates, metal and chemical supply.”

Benchmark Mineral Intelligence also anticipates that prices will fall in early 2023 given surplus forecasts. “However, it is important to note the oversupply will come from excess cobalt contained in hydroxide, whilst the metal market will remain relatively tight,” Hughes said. “This, along with robust long-term cobalt demand, is expected to prevent prices falling too far in 2023.”

Although the overall market will be in oversupply, the metal market will remain relatively tight.

“That’s given limited planned growth in metal refining, and robust demand from aerospace and military sectors,” Hughes said. “This may limit the downward potential of cobalt prices.”

An interesting catalyst for investors to watch will be developments at the Tenke Fungurume mine in the DRC.

“Exports have been blocked from the mine for several months and the dispute seems to be escalating, with local reports suggesting CMOC may look for compensation from Gécamines,” Hughes said. “As one of the largest cobalt mines in the world, if the dispute continues it could majorly impact the market balance in 2023.”

In 2023, junior miners may struggle to obtain project financing in a falling price environment.

“Although it is important to remember cobalt is primarily a by-product, so this will depend on the primary product of the mine,” Hughes said. “In general, the miners are also competing with alternative supplies of cobalt from high-pressure acid leaching projects and recycling, again making it harder to secure financing for new mines.”