Research agency Fitch Solutions Country Risk & Industry Research expects some downside for cobalt prices in the near term, on the back of lower electric vehicle (EV) battery demand and increasing global production of cobalt.

As of March 1, the London Metal Exchange cobalt price has slumped to a three-month average of $34 180/t, compared with a four-year high of $82 000/t in May last year.

Fitch Solutions says the current lows for cobalt prices are not far from the low $26 000/t price average of 2019.

The agency expects slowing EV sales growth and battery production, as well as the resulting pressured prices of cathodes in mainland China, to place a cap on cobalt prices this year.

On the demand side, prices have been pressured in the year-to-date owing to a fall in battery chemistry prices across the board, as EV battery production in China has slowed in tandem with new electric vehicle (NEV) production and sales growth.

Fitch Solutions explains that, although passenger EV sales will still grow by 23.5% year-on-year this year, it is a far cry from the 112% growth recorded in 2022.

According to the China Association of Automobile Manufacturers, 408 000 NEVs were sold in January, which was a 50% decline on the sales of December, and a 6.3% decline on the sales of January 2021.

NEVs accounted for 24.7% of all car sales in China in January, down 7.1% from December’s 31.8% share.

Fitch Solutions says the subdued demand can be attributed to the elimination of subsidies. As of January 1, the Chinese government no longer provides cash subsidies to buyers of EVs, after granting subsidies to buyers of EVs since 2010, in support of commercialisation.

That said, EV buyers are still entitled to a 10% purchase tax exemption until the end of this year.

Additionally, many Chinese automakers have announced price increases since November last year, on the basis that the phase-out of subsidies would squeeze their profit margins further, having already been pressurised by rising costs. This has, in turn, put pressure on battery prices and battery metals, including cobalt.

Elsewhere, demand for cobalt in batteries within consumer electronics such as laptops and phones will remain similarly grim in light of the global economic slowdown.

According to International Data Corporation, worldwide smartphone shipments declined by 9.7% year-on-year in the third quarter of 2022, to 301-million units. However, the recovery of the Chinese economy following numerous Covid-19 lockdowns in 2022 will see consumer spend increasing.

Fitch Solutions expects a 3.6% year-on-year growth in consumer electronics sales for China this year, compared with a 0.9% decrease in 2022.

In the US, Fitch Solutions reports retail sales for electronics and appliances rose by 3.5% month-on-month in January, which supports demand for cobalt.

In the longer term, Fitch Solutions says a pivoting preference towards reduced cobalt or cobalt-free battery chemistries is likely, which will drive cobalt prices downward. The main reason behind this preference is the concern surrounding cobalt mined from the Democratic Republic of Congo (DRC), as global cobalt production is concentrated in the country.

Fitch Solutions adds that Indonesia is rising as a cobalt producer, with its market share set to increase in the coming decade after surpassing Australia and Russia’s production levels last year.

While the DRC produced close to 68% of global cobalt supplies at 130 000 t in 2022, Indonesia produced 5% at 10 000 t; however, Indonesia’s share of global cobalt output is expected to hit 20% by 2030, given current investment and development rates.

Moreover, the world’s producers are increasingly producing lithium-iron-phosphate (LFP) batteries, which are cobalt-free, safer and less expensive, Fitch Solutions states.

According to the Cobalt Institute, LFP batteries now represent about 30% of the total EV battery market, a share which is likely to grow further as automakers seek to lower costs in an increasingly competitive arena.

Meanwhile, more firms outside China are looking to develop lithium sulphur cathodes to gain independence from this market and focus on mineral security.

All these factors weigh on demand for cobalt and cobalt prices in the foreseeable future.