Cobalt Outlook 2022: Rapid EV Growth to Drive Demand, Resilience in Prices

How did cobalt prices perform in 2021?

Looking back at how prices performed in 2021, there’s little doubt that cobalt beat expectations after a 2020 that brought a price rebound following years of decline.

“Price performance has certainly surprised to the upside this year, but it reflects strong downstream demand, particularly from EVs, which have continued to outperform market expectations, and tight market conditions overall,” Harry Fisher of CRU Group told INN.

Cobalt kicked off 2021 on an uptrend as investors turned their attention to the EV sector and battery metals.

Market conditions remained very strong during the first half, and prices continued to rally through Q4. Experts expected that cobalt would finish the year more than twice where it started in January 2021.

“The cobalt market outperformed expectations in Q4, as the cobalt metal price rally sustained throughout the quarter ― although this was not altogether a surprise considering market fundamentals,” Greg Miller of Benchmark Mineral Intelligence told INN.

That means it wasn’t just the bullish outlook for battery demand that helped cobalt in 2021. The upswing in prices was underpinned by several converging factors, Miller explained, which included increased restocking from industrial sectors and ongoing disruptions to supply chains globally.

Surplus inventory held mainly in the hands of traders, paired with limited metal production in China through the year ― which is the traditional counterweight to price rises ex-China ― were also factors pushing prices up.

Commenting on the biggest surprise of late 2021 in the cobalt market, the Benchmark Mineral Intelligence analyst said it was the extent to which the China and ex-China markets diverged.

“Prices in the Chinese domestic market failed to keep pace with other regions, in part due to negative sentiment over growing lithium-iron-phosphate (LFP) utilization, with refiners reporting that they were operating at a loss for much of the quarter,” he explained to INN.

The growing LFP cathode market in China was a topic of concern for many cobalt investors in 2021, as this type of cathode — which is also used in electric car batteries — doesn’t use cobalt. Cathodes containing cobalt include nickel-cobalt-manganese (NCM) and nickel-cobalt-aluminum (NCA).

How could supply and demand factors affect cobalt prices in 2022?

It has been clearly established that the EV industry is a key driver for cobalt, with demand increasing this past year on the back of higher sales that materialized in key regions such as Europe. “EVs remain the real driving force of the cobalt market and will continue to see substantial gains in 2022,” Fisher said.

As mentioned, this past year, worries among cobalt investors increased as the use of LFP cathodes picked up pace, with many speculating how much this could impact the cobalt space.

“I don’t think investors should be too concerned, as we see absolute cobalt demand continuing to increase throughout the demand,” Miller said. “Ultimately, we see structural deficits emerging in the cobalt market from 2025, so new technologies will be needed to bridge these supply shortfalls.”

CRU also continues to see the battery market dominated by both NCM and LFP chemistries for EV applications.

“LFP has built market share in China through 2021 due to the popularity of mini EV models such as the Hongguang mini ― but NCM will hold ground for longer-range, larger and higher-performance vehicles,” Fisher said. “We expect that cobalt demand will remain robust for this reason despite LFP’s recent performance.”

What is ahead for cobalt prices in 2022?

In 2022, prices are expected to remain strong, and this has been further supported by recent annual contract negotiations, according to CRU’s Fisher.

“The upward trend is likely to slow as some new supply comes online to bring the market closer to balance relative to 2021, and relieve some tightness,” he said. “However, ongoing supply chain and container shipping constraints may maintain market tightness and see prices move higher.”

Meanwhile, Miller expects prices to soften from Q4 levels next year, as the market transitions back into a slight surplus in light of increased supply out of the DRC and the commissioning of new projects in Indonesia.

“However, we are unlikely to see prices collapse like they did in 2018/2019, as the market is set to remain well supported by strong demand-side fundamentals,” Miller said. “Moreover, the emergence of the Omicron variant of COVID-19 threatens to delay the easing of logistics bottlenecks, which could provide further support to prices.”

For her part, Yu said the cobalt market has been critically affected by logistical challenges, and the emergence of Omicron means supply constraints will likely continue to dominate cobalt prices in 2022.

“If prolonged, those constraints could support elevated prices and remind battery makers of the concentration risks in cobalt supply, potentially speeding up cobalt thrifting in batteries,” the analyst added.

What are the key factors that could affect cobalt prices in 2022?

For Miller, an important trend to watch next year is how battery industry demand for cobalt metal impacts pricing.

“We are seeing increased metal consumption from ESG-conscious end consumers in the battery supply chain, driving increased competition for the limited available supply,” he added.

Commenting on what factors he will be paying attention to in 2022, Fisher said EV sales will continue to be a key catalyst. On the demand side, he will also be watching the aerospace sector's recovery, which will be subject to COVID-19 travel restrictions and the impact of Omicron.

“Supply chain and container shipping constraints slowing cobalt hydroxide volumes from the DRC to China” will be another factor to pay attention to, Fisher said.

On the supply side, ongoing ramp up of HPAL operations in Indonesia and any announcements of further expansions ― as well as Mutanda’s restart and other supply additions in the DRC ― are some of the catalysts to watch out for in 2022, according to the analyst.