‍Cobalt Market Volatility Creates Near-Term Caution

• Oversupply persists, with a 21% jump in 2022 mined supply not yet absorbed by demand growth
• Prices could remain depressed through 2024 until fresh supply investment responds to forecast doubling of demand
• Key demand sources in consumer electronics and portable devices weakened substantially in 2022
• Dominance of DRC at 73% of mined supply concentrates risk on supply continuity from a single jurisdiction
• Policy-driven supply chain localization in the US and EU could disrupt established producer dynamics before boosting investment

Price Peaks and Troughs Whipsaw Cobalt Market

The cobalt market experienced a turbulent 2022, with the year proving a tale of two starkly divergent halves. Prices peaked in April, reaching levels not seen since 2018, before abruptly halving into year's end. This volatility reflected shifting supply and demand dynamics as well as momentous policy changes that stand to reshape supply chains. For investors, caution is warranted in the near term as oversupply persists. However, cobalt's integral role in electrifying transport and strict new domestic mining mandates breed optimism further out.

Supply Growth Accelerates Just as Demand Stumbles

Early 2022 tightness rapidly reversed as supply responded. Mined cobalt supply grew 21% to almost 200kt, alleviating constraints as the industry's dominant player, the Democratic Republic of the Congo (DRC), flexed its muscles with output jumping 70%. The DRC strengthened its stranglehold on production, now controlling 73% of global supply. An unlikely new entrant also emerged, with Indonesia displacing established producers like Australia and the Philippines as the number two supplier. By rapidly developing local nickel and cobalt projects and processing capacity, Indonesia contributed 20% of the new mine supply, although the DRC's lead remains enormous.

Demand hit a record 187kt, up 13%, but was unable to absorb the swelling supply. Electric vehicle cathode chemistries, especially nickel-cobalt-manganese (NCM), were the principal demand driver, accounting for 40% of total end-use and 86% of growth. This further eroded cobalt's historic reliance on consumer electronics. However, weakness in this traditional market dragged on prices as its dominant lithium-cobalt oxide cathode chemistry faltered.

Caution in the Near-Term

The turbulence has affirmed cobalt's integral battery role but created a near-term oversupply. Demand is forecast to double through 2030 as electric mobility accelerates, approaching 400kt annually. But the current oversupply could persist until 2024 before fresh supply investment responds.

New government policies will dramatically impact investment decisions. Landmark US and EU legislation aim to reshore more battery supply chains, mandating local content minimums. This will reshape cobalt's geographical supply mix. The DRC will remain paramount, but low-cost Indonesian resources are poised to capture over one-third of the new supply.

For investors, the oscillating dynamics breed a cautious near-term stance but an optimistic long-term outlook. In the next 12-24 months, oversupply will likely continue pressuring prices. But with demand set to soar, those with longer time horizons should prepare for a new wave of investment in additional capacity.

Target Localized Production and Recycling to Benefit from Policy Tailwinds

Key targets include primary cobalt production and recycling projects located in jurisdictions like North America and Europe where policies favor supply-chain localization. Integrating back down the value chain towards precursor and cathode production in these regions will also be advantageous. Ultimately, cobalt's irreplaceable properties ensure it remains central to electrifying transport and storing renewable energy well into the future.

Cobalt Market Review: Price Volatility and Supply Chain Shifts Defined 2022

The cobalt market experienced significant volatility in 2022, with prices peaking in April before halving by year's end. Shifting supply and demand dynamics, alongside policy changes, will shape the market's outlook.

EVs Drive Record Cobalt Demand Despite Price Correction

Electric vehicles (EVs) cemented their position as the prime cobalt demand driver, accounting for 40% of total end use. Overall, cobalt demand grew 13% to 187kt, with EVs comprising 86% of this growth. However, prices halved from an April peak as supply chain constraints eased and consumer electronics demand slowed.

Nickel-cobalt-manganese (NCM) cathode chemistries overtook lithium-cobalt oxide (LCO) as the largest source of EV battery demand. LCO's dominance in electronics left it exposed to market weakness.

Supply Growth Accelerates, Led by DRC and New Entrant Indonesia

Mined cobalt supply jumped 21% to nearly 200kt, alleviating constraints. The Democratic Republic of the Congo (DRC) remained the major producer with a 73% market share, providing 70% of the new supply.

Indonesia became the number two producer, surpassing Australia and the Philippines. Its rapid capacity expansion supported 20% of global growth, though the DRC's dominance persists.

Cobalt's Central Role Affirmed Despite Substitution Efforts

Cobalt looks set to maintain an integral battery role despite substitution efforts. Multiple cathode chemistries will service key end uses rather than one dominating. NCM and LFP will maintain significant market shares.

Major downstream players recently reaffirmed cobalt's importance for the energy transition through new projects.