There is widespread confidence of strong future demand growth for cobalt, with the growth in electric vehicle (EV) batteries outweighing the pace of thrifting, says BMO Global Commodities Research analyst Colin Hamilton.
Given this, he notes that attention is “naturally focused” on the supply side of the market, which is, and will remain, “highly dependent on the Democratic Republic of Congo (DRC)”.
However, interest is growing in alternatives such as recycling and deep-sea mining.
Hamilton pointed to presentations delivered by industry consultants CU and Roskill during the virtual Cobalt Institute conference last week, noting their estimates of robust demand figures for cobalt of a 13% compound annual growth rate (CAGR) and 7% CAGR, respectively.
The zero-cobalt lithium-iron-phosphate (LFP) cathode renaissance was noted, but confidence in cobalt’s unique durability and safety properties in both EV and portable electronics were also echoed by end-use consumers such as Johnson Matthey, Hamilton noted.
This is a thesis BMO agrees with, says Hamilton, adding that, while efforts to drive low and zero-cobalt alternatives will undoubtedly yield some successes, BMO still sees an ongoing need for additional cobalt units over the coming years, both from primary supply and recycling.
On the supply side, there was significant discussion about near-term logistical constraints impacting the shipments of material from Africa, with spot feedstock availability very tight at present.
All DRC-focused participants noted that getting material out of the DRC and to China is an ongoing challenge owing to South African port restrictions and a lack of both containers and truck supply, Hamilton says, noting that currently, 80% of this material was shipped via Durban.
He notes that there was widespread discussion about the need for more efficient export routes to ensure stability of supply.
However, he refers to “an interesting observation” regarding cobalt supply patterns by Glencore chief cobalt trader David Brocas, who noted that the cobalt market had matured rapidly in recent years, having taken steps to improve transparency through a convoluted value chain.
Meanwhile, increased buffer stocks are being used to reduce buyers' security of supply fears, while, with more metal now being dissolved for use in the chemical markets, the sub-market bifurcation present two to three years ago is no longer present, says Hamilton.
One topic that is still present from that time, he notes, is a general timeline mismatch between cobalt miners, which need longer-term arrangements to develop operations, and automotive consumers, who in the main are still formulating strategies and targets, and thus require flexibility.
Glencore highlighted that, unlike for internal combustion engine vehicles, miners are taking the fuel price risk for EVs at present, and would be willing to work with the auto industry on strategies to pass this to the end-purchaser of the vehicle, particularly for low-carbon cobalt.
During the conference, it was reported that Glencore’s Mutanda operation in the DRC would be restarting. While Hamilton says this is more likely a function of the copper price, being one of the very few copper assets in the world not currently operating at the current record price levels, “it is potentially a big deal for cobalt”.
However, with it being about 20% of global capacity if operating fully, BMO expects Glencore to manage cobalt recovery and deliveries carefully, and to continue to work on longer-term offtakes for the material prior to spending any capital expenditure (capex) on the development of the sulphide deposit.
Meanwhile, Hamilton comments that a key takeaway from the conference was that, if there was some doubt before, “everyone can now be sure the DRC government is aware of its central position in global electrification and decarbonisation”.
“The country is now very much on the front foot in terms of gaining greater control of mineral rights, with cobalt at the forefront, stating that all mining contracts will be reviewed with the country’s inhabitants being the natural owner of the resource,” says Hamilton, adding that the potential for a cobalt concentrate export ban was again raised during the conference.
However, he says there was also some acknowledgement that a lack of electricity currently makes local processing difficult.
Moreover, the government also wants contribution to a special fund towards a zero-tolerance approach to child mining at artisanal operations, while “taking a swipe” at various nongovernmental organisations and downstream companies for a lack of engagement on this topic.
Further signs of a more aggressive attitude from the DRC comes from President Felix Tshisekedi’s trip last week to Katanga province, the centre of the cobalt extraction industry, where he proposed “win-win” partnerships with miners, hinting that they should pay higher royalties and, in return, the government would control the artisanal sector to prevent excessive extraction and promote more rational (and safer) behaviour.
According to Hamilton, this is a plan the DRC first raised at the 2020 Mining Indaba conference. While this would affect all miners, in a relative sense, BMO sees the potential benefits for the industrial operators in the region regarding both reputation and market dynamics, with greater Organisation for Petroleum Exporting Countries-style supply control curbing price volatility, particularly to the downside.
However, Hamilton notes that it is a clear shot across the bows of smaller Chinese mining and trading firms, which have rushed into the region in recent years and exploited the artisanal sector.
With more than 90% of China’s cobalt units coming from the DRC at present, any disturbance to this relationship would cause significant ripples across the cobalt market, Hamilton points out, noting that China is, however, getting some security of supply hedges in place.
Further, the Chinese-funded HPAL operations in Indonesia will not only produce significant volumes of battery-grade nickel, but also of cobalt at what is thought to be a roughly 10:1 ratio.
BMO expects about 25 000 t of Indonesian cobalt supply by 2025, with this potentially doubling by 2030.
“Interestingly, there have been two developments in this area in the past week since the DRC ramped up the rhetoric. The Lygend project has announced first production of mixed nickel/cobalt hydroxide precipitate, which will be sent to China over the coming weeks,” says Hamilton.
Moreover, a partnership involving Tsingshan and Huayou confirmed plans for a 120 000 t/y facility, which would produce 15 000 t/y of cobalt.
By 2025, China will remain highly dependent on DRC cobalt supply, but not as beholden as is currently the case, Hamilton says.
The push into Indonesia will itself potentially drive some changes in cobalt market dynamics, he adds. Just as seen with nickel, it can be expected that the coal-fired nature of Indonesian production and the management of tailings will be closely monitored.
As a result, Hamilton notes that BMO expects almost all Indonesian production to be sent to China, while the material from the DRC flows elsewhere.
In terms of low-carbon cobalt, the DRC stacks up well with most of the electricity supply in Katanga coming from the Inga hydroelectric dam, though logistics to the wider market can be carbon intensive.
Over time, BMO expects recycled material to lead the green cobalt push; however, at present this remains a small market, particularly outside of China.
“So, whether from Indonesia or the DRC, whatever way you look, cobalt supply has to deal with some environment, social and governance (ESG) challenges. So why not add another into the mix?” Hamilton questioned, referring to a presentation by Cook Islands, Polynesia, Prime Minister Mark Brown.
While this region is not considered a typical mining jurisdiction, but rather a country at the forefront of the nascent deep-sea mining industry, Hamilton says that, with an exclusive economic area of two-million square kilometres of ocean, including part of the much-discussed Clarion-Clipperton Zone (CCZ), the country’s reserve has been estimated at 12-billion tonnes of polymetallic nodules, which could contain 21-million tonnes of cobalt.
Other countries have pegged similar resources, though there are arguments for and against deep-sea mining. The Cook Islands highlighted during the conference that it is already being directly affected by climate change, and sees its ocean resource as a way of funding the resilient infrastructure needed to protect the population.
Others, meanwhile, see the scale as a way to kickstart mass vehicle electrification without concerns over raw material availability, allowing efforts to be put into boosting recycling for a closed-loop resource, Hamilton said.
However, more than 80 nongovernmental organisations have voiced concerns about the dangers of commercial extraction from the sea-bed given the lack of research on the impact, with companies such as Samsung and BMW noting that at present “they would not be happy to use deep-sea materials”.
Overall, 2021 is set to be a pivotal year for deep-sea mining, being the year when the International Seabed Authority is due to finalise long-discussed regulations for mineral extraction.
Twenty countries, including China, already have exploration contracts in place.
For cobalt, BMO does not see this as impacting its five-year supply-demand expectations; however, through 2030. it can be "viewed as a relatively low probability, high impact supply not currently in anyone’s model".
“Overall, we see cobalt as looking fundamentally healthy over the next couple of years provided a combination of Glencore and the DRC government manage supply carefully. With gigafactories popping up all over the world, we anticipate new buyers will be looking to secure strategic supply, in certain cases backed by a government strategic reserve to manage technology risk,” Hamilton says.
In the longer term, however, he notes there remains “a good deal of risk” around both supply and demand in BMO’s view, “but even assuming a further reduction in average cobalt content per EV, the overall market growth should keep prices at a level that is profitable for incumbent assets, with the biggest risk being a mass ramp-up of Chinese-funded capacity in Indonesia”.