What happened to cobalt in Q1 2022? Our cobalt market update outlines key market developments and explores what could happen moving forward.
Click here to read the previous cobalt market update.
Battery metals continue to make headlines as interest in electric vehicles (EVs) surges.
The first quarter of 2022 brought strong demand for cobalt, which supported higher prices and also helped some cobalt stocks experience strong year-to-date gains.
Read on to learn what happened in the cobalt market in Q1, including the main supply and demand dynamics and what market participants are expecting for the rest of the year.
Cobalt market update: Price performance
Cobalt ended 2021 by beating expectations from investors and market watchers. Prices started to climb on the back of surging demand from the EV industry, and the battery metal doubled in price by the end of the year.
At the end of last year, analysts' cobalt outlook for 2022 was bright — experts were expecting the EV industry to continue to drive demand and were calling for resilience in prices.
In Q1, cobalt's performance was mostly as expected, with strong demand continuing from battery markets and tight conditions persisting, Harry Fisher of CRU Group told the Investing News Network (INN).
“Russia’s invasion of Ukraine was of course the key shock which has tightened the screws further on the market,” he said. Russia is the world’s second largest producer of cobalt, with output reaching 7,600 metric tonnes (MT) in 2021, according to the US Geological Survey.
After averaging US$24 per pound in 2021, European metal prices started the year at around US$32, but have risen further on the back of increasingly tight conditions and uncertainty around the war in Ukraine. By the end of March, European prices were approaching US$40, according to CRU data.
“We expect that market tightness will continue while global supply chains remain constrained and keep intermediate payables high,” Fisher said. “Conditions were expected to begin to ease from the second half of 2022, but this is now at risk from impacts of the war in Ukraine.”
Cobalt market update: Supply and demand
As mentioned, one of the main drivers of cobalt demand is the EV industry, which has been showing exponential growth in the past few years. Global electric car sales totaled 4.2 million units in 2021, up by 108 percent versus 2020 and by 198 percent versus 2019, according to data from JATO.
EV forecasts show there are no signs of this strong sales trend slowing down in 2022. That’s why many experts predict that cobalt demand will continue to enjoy healthy levels this year.
“We now expect cobalt demand to be even stronger as EV sales continue to accelerate,” Fisher said. CRU’s current forecast is for 3.6 million additional NEV sales year-on-year in 2022, with global penetration reaching 12 percent.
Nickel and cobalt are essential elements in nickel-cobalt-manganese cathodes, in contrast to lithium-iron-phosphate (LFP) cathodes, which are nickel and cobalt free. LFP cathodes have been gaining market share, particularly in standard-range vehicles, and Tesla (NASDAQ:TSLA) has said it used this type of cathode in nearly half of the models it produced in Q1.
“The recent nickel price movements are unlikely, for now, to cause a seismic shift away from nickel-intensive plug-in EV batteries,” S&P Global Market Intelligence Senior Analyst Alice Yu told INN. “We therefore maintain our previous cobalt usage assumptions in batteries.”
Looking over to the supply side of the cobalt story, CRU is forecasting around 40,000 MT of mined supply growth this year, more than double 2021 production.
“Although more than 60 percent of this is from the Democratic Republic of Congo (DRC), this remains at risk from the supply chain constraints already mentioned,” Fisher said.
Russia’s war in Ukraine and its consequences will be a key catalyst for the cobalt market going forward.
“The Russia/Ukraine conflict further tightened cobalt availability, which has been under pressure from persistent logistical challenges since May 2021,” said Yu.
Russia’s Norilsk Nickel (MCX:GMKN), the largest Russian cobalt producer, produced 3,794 MT of cobalt in 2021, equivalent to 2.7 percent of global mine production, and exported mainly to Europe.
“Downstream users, especially in Europe, are diversifying away from Russian material, considering logistical and payment challenges and the sustainability of doing business with companies based in Russia, even though there are no explicit sanctions on Russian cobalt or other battery metals, lithium and nickel,” Yu said.
The conflict has also set back progress in establishing a supply chain to the European plug-in EV market.
“Norilsk’s Harjavalta refinery in Finland produces battery-grade cobalt and nickel, partly by using feedstock from Russia, and provides non-DRC-mined cobalt,” Yu said to INN.
“BASF (OTCQX:BFFAF,ETR:BAS) is building a cathode material plant adjacent to the Harjavalta refinery scheduled to start this year, based on long-term cooperation with Norilsk.”
Cobalt market update: What’s ahead?
Speaking about how cobalt could perform in the second quarter, Fisher said prices will remain high during Q2.
“They may start to adjust down slightly later this year if supply chains can start to normalize, although we are not anticipating a significant fall,” he said. “Overall, the market is expected to be more balanced than in 2021 with further supply additions.”
For now, it appears cobalt prices on the London Metal Exchange and in China have peaked since mid-March on the price rally in the first half of the month.
“The pace of the cobalt price correction will depend on: how quickly European buyers can secure non-Russian cobalt; the interplay between stronger demand from increasing Chinese plug-in EV battery demand and weakness in consumer electronics due to high lithium prices; and battery production interruptions in Shenzhen, Guangdong province, China, as the result of a COVID-19 outbreak,” Yu said.
As the second quarter kicks off, there are a few catalysts investors interested in cobalt should keep an eye out for.
“Further impacts from the war in Ukraine are a key focus at the moment for all commodity markets and the wider global economy,” Fisher said. “For cobalt, impacts are mainly focused on Norilsk Nickel's supply from Russia and Finland, supply chain impacts and oil prices.”
Another factor to watch is what happens with China's new set of lockdown restrictions due to COVID-19. China is the world’s leading producer of refined cobalt and the top cobalt consumer, with more than 80 percent of its consumption being used by the battery industry.
“High COVID-19 case numbers and an extended lockdown in Shanghai may slow demand growth in China over the coming months with impacts on battery and EV production,” Fisher pointed out. “EV sales remained strong in Q1, but are now at risk from the impacts of the lockdown.”
In addition, CRU is monitoring further supply-side investment commitments given high prices and expected market deficits in the medium term.
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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.
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