Cobalt investors have had a wild ride the past 3 years, as prices soared in 2017 then crashed in 2018/2019. For those investors with a longer time frame, the long term demand/supply opportunity remains intact. That is, post 2022 we may start to see increasing cobalt deficits as the electric vehicle (EV) boom takes off. One reason 2022 is significant is that is when electric vehicles are forecast to cost the same as conventional cars. At this point, the demand for electric cars should explode. And speaking of ‘explode’, cobalt is an essential part of the lithium-ion battery that stops thermal runway and explosion.
Cobalt 5 year price chart
Cobalt demand forecasts
Almost all industry experts agree cobalt will be needed in future lithium-ion batteries and in increasing volumes. Industry expert Benchmark Minerals say cobalt demand will outstrip the decline from cobalt thrifting. Experts agree cobalt thrifting will reduce the amount of cobalt in a 100% battery electric vehicle (BEV) from around 20-33kgs (NMC 1:1:1 chemistry) to around 8-12kgs cobalt (NMC 6:2:2 chemistry) over the next 5-10 years. Tesla’s low cobalt NCA battery is alleged to have as little as 6kgs cobalt, but as we know Tesla’s have also had several issues with battery fires. Most large car OEMs will not want to risk large scale battery recalls and fire risk, and hence will go with NMC 6:2:2, and possibly in some cases NMC 8:1:1.
NMC refers to nickel, manganese, and cobalt. The NMC 6:2:2 cathode is 2 parts cobalt or 20% cobalt. Again most experts see solid state batteries in electric cars as not likely in the next decade. All of this means cobalt is most likely here to stay for the next decade at least and possibly many decades beyond that, as the NMC battery is the battery of choice. The NMC lithium-ion battery is improving each year with lower costs per kilowatt hour (kWh), thereby lowering the costs of EVs each year.
Despite thrifting, cobalt demand is set to surge driven mostly by the EV boom. The forecast suggests by as early as 2022 or 2023 we will start to see cobalt deficits. Furthermore, the deficits are forecast to grow substantially each year.
Bloomberg New Energy Finance cobalt supply and demand forecast (assisted by Darton Commodities)
The key take away here is that should the EV boom continue to grow rapidly, cobalt is likely to go into deficit again as soon as 2022/23.
The cobalt swing producers right now are the Democratic Republic of Congo (DRC) artisanal miners and Glencore (including their 86% owned Katanga Mining). Given the recent oversupply from the DRC (and the onerous new DRC cobalt royalties and profit tax) swing producers have reduced supply. In fact, just last week Glencore announced it plans to put its massive DRC Mutanda copper-cobalt mine on care and maintenance at the end of 2019, which will take out ~25,000 tonnes or ~20% of global supply from the market. This latest news is positive for cobalt prices which reacted by rising about 8% from their recent lows.
CRU’s George Heppel, head of cobalt and lithium analysis at CRU International, recently stated: “When we look at the EV market over the next 10 years, we see the big increase coming in 2020 to 2021. That will be the crunch time for global demand for cobalt as the big car companies, the BMWs, the VWs, Ford, and Daimler are set to increase production.” He estimates demand for cobalt for car batteries will grow by between 24% and 35% every year from 2020 to 2023. Even if Glencore brings Mutanda back on stream (the shutdown is for “care and maintenance”), and with the artisanal miners producing anything up to 40,000 tonnes a year, Mr Heppel believes it won’t be sufficient to meet demand. “There needs to be new supply of cobalt.”
In conclusion, cobalt is now set for a mild come back in the years 2020-2022; but by 2022/23 we may see a new cobalt boom that will be longer and stronger than the 2017 cobalt boom. Naturally, this will be very positive for cobalt junior miners wanting to enter the market. The problem is that if the market does not finance the cobalt juniors soon, by 2022/23 when cobalt will be desperately needed, they won’t be ready and the EV boom may be crippled by a lack of cobalt. Some call this the ‘cobalt cliff’.
My view is that by 2022/23 some quality cobalt juniors will emerge, the DRC will react to higher cobalt prices, cobalt supply will catch up to demand and the EV and Energy Storage (ES) booms will continue. But I expect it to still be a bit of a roller coaster ride again, especially after 2022 when cobalt and other EV battery metals demand will explode. Let’s just hope it is not the batteries exploding due to lack of cobalt.