Cobalt Market Update: Q3 2021 in Review

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Battery metals have been making news headlines for the past few years 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. The third quarter was also positive for the metal, with many junior cobalt stocks experiencing price surges.

Read on to learn what happened in the cobalt market in Q3, 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 and second quarters of the year, cobalt prices outperformed expectations due to tight supply and rising demand from the battery industry. Prices had stabilized by the second quarter, following the rally seen in the first few months of the year.

“Prices remained relatively stable as we expected (in Q3), albeit with limited spot market activity during the northern hemisphere summer and with more volumes being sold in long-term contracts,” Harry Fisher of CRU Group told the Investing News Network (INN).

Similarly, prices largely performed in line with Benchmark Mineral Intelligence’s expectations.

“The market is tight, helped in part by disruptions to logistics and high freight costs, as consumption rates improve across all downstream industries,” Analyst Greg Miller told INN.

He said the biggest surprise in Q3 was the relative lack of buying activity from the battery supply chain in the Chinese market, despite the strength of EV sales.

“It seems refiners still have relatively large stocks of inventory that they acquired earlier in the year; however, I expect this to change over the coming months,” he added.

Speaking about the main trends in Q3, Fisher said end-use demand for sulfates remained very high, particularly due to a strong performance for EV sales.

“Chinese imports of cobalt metal remain high due to the majority of domestic metal capacity being idled, and continued tightness for hydroxide,” he said.

For the expert, the key announcement in Q3 was a US$2.5 billion expansion at China Molybdenum’s (OTC Pink:CMCLF,HKEX:3993) Tenke Fungurume mine in the Democratic Republic of Congo (DRC), with production expected to double from current levels by the mid-2020s.

“This is a positive sign for the market, but there is still a need for further mined supply investment,” Fisher explained to INN.

Cobalt market update: Supply and demand

Restrictions on power consumption in China are a potential headwind, although the firm anticipates that the EV industry will be insulated from the most severe restrictions due to its strategic importance.

“EV demand has been incredibly strong — 2021 sales are expected to increase by around 85 percent year-on-year,” CRU’s Fisher said.

Chinese EV sales surpassed 2020 levels by the end of July, and August sales exceeded 300,000 units for the first time; sales went past 350,000 units in September.

“Sales in the US steadied in Q3, but we are still expecting strong growth as they look to make up lost ground,” Fisher added. “Subsidies remain an important driver in Europe — there is a downside risk from the scaling back of subsidies; however, there is no current expectation of this.”

Looking at other demand segments, demand from industrial sectors continued to improve in Q3, and all segments are showing signs of recovery from pandemic-related demand destruction.

“This trend is expected to continue into Q4 and 2022 as the macroeconomic outlooks brighten and international travel restrictions ease,” Miller said.

Lithium cobalt oxide demand was softer, partially due to ongoing chip shortages and also seasonal factors, according to CRU.

“Aerospace demand is showing some very early signs of increased activity, supported by improving commercial flight activity such as trans-Atlantic routes,” Fisher said. “We expect to see a continued gradual recovery through Q4 and 2022.”

The cobalt supply chain was put to the test when the coronavirus pandemic hit, with the market showing resilience in the midst of uncertainty.

Most operations have now adjusted to working alongside COVID-19 restrictions, Fisher said.

“However, there has been a series of supply chain disruptions from a variety of factors, such as COVID-19 restrictions at South African ports, disruptions on the DRC-Durban trucking routes, civil unrest in South Africa and more recently container shortages and ocean freight bottlenecks,” he added.

Miller agreed, saying the main supply-side challenge this year has been the disruption to global logistics, which has limited the flexibility of supply to respond to fluctuations in demand, while also adding cost pressures. “From all accounts, logistics disruption is set to continue in Q4 and into early 2022,” he added.

With all that in mind, Benchmark Mineral Intelligence is forecasting that the cobalt market will be in a slight deficit this year, returning to surplus next year as greater volumes of cobalt hydroxide are produced from existing and new mines in the DRC.

“Adding to this, there will also be cobalt volumes entering the market from new nickel projects in Indonesia,” Miller added.

Similarly, CRU data shows the market is in deficit this year due to higher-than-expected demand, particularly for sulfates in battery end uses, and reduced output from Chinese metal refineries.

“The market is likely to be more balanced in 2022,” Fisher said.

Cobalt market update: What’s ahead?

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

Following the trend seen this year so far, prices have made further gains early in Q4 with improved market activity. “This is likely to continue,” Fisher said. “Contract negotiations have happened earlier this year as buyers look to secure volumes.”

Benchmark Mineral Intelligence is also expecting metal prices to continue ticking upwards in Q4 on strong market fundamentals.

Commenting on factors to watch in Q4, Fisher said hydroxide supply remains very tight, so any announcements from the DRC will be important for next year’s outlook.

“We expect to hear more on the plans for Mutanda’s restart in December, which is currently expected to commence production mid- to late next year,” he said.

Another catalyst could be the aerospace sector, Fisher added, which is a key area of global uncertainty and could further tighten the metal sector if international travel recovers faster than anticipated.

For his part, Miller said investors should follow the progress of EV sales, which continue to surprise to the upside. “They represent a good indication of market fundamentals and the direction of pricing into next year,” he 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.