Cobalt Market Update: Q2 2021 in Review

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Battery metals have been making news headlines for the past few months as widespread interest in electric vehicles (EVs) continues to surge.

Cobalt prices saw an uptick during the first months of the year and stabilized in the second quarter, with strong demand seen for the key EV battery raw material.

Read on to learn what happened in the cobalt market in Q2, including the main supply and demand dynamics and what market participants are expecting for the rest of the year.

Cobalt market update: Price performance

During the first quarter of the year, cobalt prices outperformed expectations due to tight supply and rising demand from the battery industry.

Speaking with the Investing News Network (INN) about how cobalt performed in the second quarter, Harry Fisher of CRU Group said cobalt metal prices remained relatively steady through Q2 as expected.

European cobalt metal prices averaged around US$21 per pound in Q2, a similar level to Q1. Prices adjusted down slightly through the quarter from a high of US$23 due to weaker spot market activity.

“European prices continued to be below Chinese prices, as has been the case for almost all of 2021,” Fisher told INN. “Chinese sulfate prices fell slightly below metal prices from the start of April after remaining at a premium since November 2020.”

After prices rose early in Q1, end users purchased ahead of their requirements.

“This led to a period of destocking, weaker end-use demand and spot market activity through much of Q2, putting some downward pressure on prices,” Fisher said.

After a strong start to the year, cobalt prices experienced corrections in Q2 in response to limited buying activity across the supply chain, Greg Miller of Benchmark Mineral Intelligence told INN.

“The downturn in activity across the quarter was attributable to several factors, notably the impact of elevated consumer inventory levels, which were accumulated in Q1 due to fears over supply security,” he said. “Also uncertainty over demand headwinds, particularly the impact of the global chip shortage on consumer electronic demand and continued weakness in demand from industrial sectors.”

Cobalt market update: Supply and demand

As seen in Q1, cobalt demand growth continues to be led by EVs and other battery markets.

“In other end-use sectors, traditional industrial applications are expected to continue their recovery as major economies push forward with COVID-19 vaccinations and relaxing restrictions,” Fisher said.

The aerospace sector remains a key area of uncertainty, with demand still significantly down compared to pre-COVID-19 levels. “With increased flight activity likely in Europe and North America in the second half of this year, we may start to see some recovery in this sector, but it will take time before it returns to normal levels of activity,” Fisher commented to INN.

Looking ahead, Benchmark Mineral Intelligence expects overall cobalt demand to continue to grow for the rest of 2021. “Alongside increasing demand from the battery industry in response to rising EV sales, demand from the superalloy industry is also expected to pick up in Q4 as international travel begins to recover towards pre-COVID-19 levels in light of the global vaccine rollout,” Miller said.

In terms of supply, major news came in Q2 when top producer Glencore (LSE:GLEN,OTC Pink:GLCNF) confirmed the reopening of Mutanda by the end of 2021. Mutanda is one of the largest cobalt mines, and was put on care and maintenance due to low cobalt prices in 2019.

“We don’t expect this to have any impact on the market in 2021, but it does remove a key risk from the outlook,” Fisher said. “If Mutanda’s return had been delayed, then it would have significantly impacted the market balance in the medium term.”

Commissioning of Mutanda will begin in 2021, but production will not start until mid- to late 2022, with only small volumes expected. The ramp up will be gradual over the medium term, the analyst added.

Similarly, Miller believes the return of production at the mine is unlikely to result in oversupply in the cobalt market, with much of the material expected to be used to service Glencore’s long-term contracts.

In terms of overall supply, CRU does not foresee any major changes for the rest of 2021.

“Some Chinese refiners are still reducing or pausing metal output due to general market weakness, and prioritizing chemical production instead,” Fisher said. “PT Lygend in Indonesia has successfully commissioned Phase 1 of its high-pressure acid leach, with Phase 2 expected in October.”

Meanwhile, Benchmark Mineral Intelligence expects supply availability to improve in the second half of the year in light of new projects entering production in the Democratic Republic of Congo, the world’s top-producing country; those include Wanbao Mining’s Pumpi project. The asset is designed to produce around 5,000 tonnes of cobalt hydroxide per year on a metal content basis.

In addition, the continued ramp up of existing projects, such as ERG’s RTR and Glencore’s Kamoto Copper Company, and Ambatovy returning to the market after a lengthy stoppage, will contribute to supply for the rest of 2021. “Further to this, the logistics delays impacting the supply chain in late 2020 and early Q1 now appear largely to have been resolved,” Miller said.

One key topic that is starting to get more and more attention is recycling. However, Fisher explained that recycling of lithium-ion batteries is still not economic at a commercial scale.

“But it’s becoming increasingly important to understand as more EVs (and other battery applications) are sold and will eventually need to be recycled,” he said. “Cobalt processing waste is recycled in China, but volumes are not well recorded at present.”

For his part, Miller said recycling could help to mitigate some of the supply gaps that are forecast to emerge as demand from the EV sector soars.

“However, the ability of battery recycling to plug emerging supply gaps fundamentally depends on a degree of scale that is unlikely to emerge until after 2030, where Benchmark forecasts cobalt from secondary sources to account for more than 15 percent of total supply for the first time.”

Cobalt market update: What’s ahead?

As the second half of the year kicks off, there are a few catalysts investors interested in cobalt should keep an eye out for.

For Fisher, price dynamics between cobalt metal and sulfate, as well as Europe and China, continue to provide clues on market movements. “European prices have started to rise in early Q3 for example, indicating improved activity and market conditions,” he said. “After a slow Q2, spot market activity is likely to improve as demand recovers after a period of destocking.”

Overall economic recovery post-COVID-19 will remain another important factor for cobalt, as it will lead to strengthening industrial and manufacturing activity and increased levels of domestic and international air travel, Fisher said.

Looking at how prices could perform in Q3, Fisher said he expects them to remain relatively steady through Q3 and stay in the low to mid-US$20s through the rest of 2021.

“We are starting to see some early signs of recovery in the European markets with prices increasing in late June and early July,” he said. “Chinese prices are starting to follow, so we may see prices strengthening slightly in early Q3.”

When asked about prices, Miller also pointed to the rebound in cobalt prices in late Q2.

“However, we believe the increase is currently largely trader driven, and prices will subsequently soften in late July/August during the seasonal summer slowdown in Europe and North America,” he said.

Nevertheless, Benchmark Mineral Intelligence remains bullish on cobalt prices, with expectations that prices will pick up again in late Q3 and into Q4.

“I think it is important for investors to continue to pay attention to the electrification targets of original equipment manufacturers, as this gives a real sense of how the market is developing in the long term,” Miller commented.

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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.