Cobalt Market Update: Q1 2022 in Review

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.

However, discussions around the use of cobalt in batteries have caused concern for some time. In Q1, worries increased due to a nickel price spike, which saw the base metal hit unprecedented levels.

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.”