Cobalt Demand Positively Impacted By Increasing Sales Of New Energy Vehicles
According to trade association the Cobalt Institute’s quarterly market update for the fourth quarter of 2022, global new energy vehicle (NEV) sales rose by 56% year-on-year to 3.5-million units, with NEV penetration reaching nearly 20% by December.
The report, which was prepared with the help of Wood Mackenzie, notes that the share of cobalt-free chemistries in electric vehicle (EV) battery formulations has increased, with lithium iron phosphate (LFP) now representing more than 30% of the total market. Despite this, cobalt consumption in EVs jumped by more than 60% year-on-year in 2022.
Meanwhile, the commercial aviation sector faced several headwinds during the quarter, including high inflation, increased jet fuel costs and the resurgence of Covid-19.
Despite these challenges, the aerospace sector remained resilient, with air travel up 18% year-on-year in 2022. This increased demand supported alloy cobalt demand and drove strong financial performance from major superalloy manufacturers.
Cobalt metal prices tumbled by 20% over the quarter owing to elevated energy prices and rising inflation, which hurt demand. The feedstock market also remained relatively quiet during the quarter, with high stocks and improved logistics dragging hydroxide payables down to the high 50s. Prices for both cobalt sulphate and tetroxide also plunged during the quarter.
The report also highlights numerous risks to the cobalt outlook, both in the short and long term.
In the short term, there is a medium probability that the positive economic impact of easing Covid-19 restrictions in China happens faster than currently forecast. There is also a high probability that the dispute over the Tenke Fungurume mine, in the Democratic Republic of the Congo (DRC), remains unresolved, affecting hydroxide shipments and production, which, in turn tightens spot availability in the global market.
Additionally, there is a medium probability that global EV growth slows owing to further Covid-19 outbreaks in China and the end of subsidies, while a high probability exists that the deepening Ukraine crisis worsens the macroeconomic outlook, leading to a plunge in demand for computers and smartphones.
Also, a high probability exists in the short term that major Congolese producers or Indonesian high-pressure acid leaching plant operators or both, expand and ramp up quicker than expected, pushing stocks higher.
In the long term, there is a high probability of greater and faster EV adoption globally, putting increased strain on cobalt sulphate availability, and a high probability that stricter environmental policies in China and Europe delay the procedure to build up processing capacity, pushing up production costs.
There is also a high likelihood that, in the long term, accelerated energy transition will require more cobalt for power generation and energy storage. Meanwhile, a medium probability exists for environment, social and governance (ESG) concerns around artisanal mining, emissions and waste disposal to slow copper and nickel developments in the DRC and Indonesia, therefore tightening mine supply.
Finally, there is a strong likelihood that that ESG and cost concerns or disruptive battery technologies trigger faster cobalt substitution across battery applications. It is possible but not likely that battery recycling exceeds the base case, thereby suppressing demand for virgin materials
