Cobalt demand to surpass 100,000 tonnes in 2017: CRU

Our commodities research and consultancy firm CRU estimates that global consumption for refined cobalt is set to reach 100,000 tonnes in 2017. Whilst demand growth for most metals has stalled in recent years, cobalt demand continues to grow strongly, spurred on by the increasing popularity of lithium-ion batteries. CRU estimates that demand for cobalt will grow at an average rate of 5% per annum for the next 10 years.

The cobalt market can be split into two segments:

Cobalt for metallurgical uses — Key sectors include superalloys (aircraft rotating parts, thermal sprays, prosthetics, etc.), high-speed steel, carbide and diamond tools and magnets.

Cobalt for non-metallurgical uses — Key sectors include lithium-ion batteries for electric vehicles (EVs); Li-ion batteries for other applications such as laptops, PCs and smartphones; polyester; and tires.

Last year, 37% of cobalt was consumed in metallurgical applications, with the rest consumed in non-metallurgical uses. This is in stark contrast to 10 years ago, when the split was fifty-fifty. Whilst CRU expects demand for cobalt metal to grow robustly, the increasing popularity of lithium-ion batteries, particularly in the EV sector, will continue to shift global demand towards non-metallurgical applications.

Cobalt-bearing nickel-manganese-cobalt (NMC) and nickel-cobalt-aluminum (NCA) batteries are rapidly becoming the technology of choice for the EV sector. By 2025, we forecast that 80,000 tonnes of cobalt will be consumed in lithium-ion batteries alone, driving overall demand to over 150,000 tonnes. This figure includes 30,000 tonnes for EVs, based on the assumption that NMC and NCA batteries will remain the most suitable types.

As it typically takes seven to 10 years to adopt battery technologies, we do not anticipate a fundamental shift in battery technology in the forecast period.

Bottlenecks

Cobalt is mostly mined and refined as a by-product of copper and nickel operations, meaning that future supply hinges on developments in these markets. With cobalt demand forecast to grow at a greater rate than copper and nickel demand, an excess amount of primary metals will need to be mined and refined to meet the world’s growing cobalt needs.

CRU assesses the asymmetrical demand for cobalt in the metallurgical and non-metallurgical sectors. Based on current reported capacities, we believe that both sectors could fall into a small deficit this year and will remain tight for the next five years. The increasing competition for raw materials from metal and chemical refineries will make the complex market increasingly prone to supply bottlenecks.

Improving nickel and cobalt prices in the mid-term will help support increased production at major integrated metal refineries.

Meanwhile, falling copper prices could lower by-product cobalt supply from African copper operations.

CRU estimates that just over 60% of the world’s mined cobalt will come from the Democratic Republic of the Congo (DRC), and 80% of the world’s refined chemicals will be produced in China this year.

CRU estimates that Chinese refineries receive over 80% of their usable cobalt from copper operations in the DRC. If there are delays to the reopening of Katanga, the ramp-up of Sicomines and the commencement of ERG’s Roan Tailings Reclamation (RTR) project — all in the DRC — or if there are shortfalls in material induced by energy or political disruption, or falling copper investment, we could see a shortfall in the availability of concentrates and hydrometallurgical intermediates to Chinese refineries.

This could stunt the growth of refined chemical production capacity, which would open a theoretical deficit of up to 10,000 tonnes by 2020.

Price forecast

The cobalt metal price fell to a monthly low of US$10 per lb. in December 2015, but has since gained ground. In August metal prices rallied well — with weekly average U.S. 99.8% minimum prices increasing from US$11.6 to US$12.7 per pound.

We expect prices will perform well in the second half of 2016 and onwards into 2017, as the market tightens and traders look to secure material ahead of expected price gains.

As demand increases beyond our capacity estimates, new capacity would be created in response to “demand pull” that should prevent prices from exceeding US$20 per lb. in the next five years.

Increasing prices should help keep growth in China’s chemical refining capacity, and could entice more cobalt-rich mines in Africa, North America and China to enter the market.

With the forecast tightness, there are numerous upside risks to our price forecast. As well as the potential supply bottlenecks, CRU has modelled EV sector growth conservatively: if production proceeds as leading manufacturers such as Tesla suggest, or if cobalt-bearing batteries become the technology of choice in Chinese EVs and grid storage systems, we could see an even larger deficit opening in the mid-term.

— Edward Spencer, PhD, is a senior consultant for nickel, stainless steel and special alloys at CRU Group, a London-headquartered commodities research and consulting group with a 244-person staff in 11 offices worldwide. Please visit www.crugroup.com for more information.