Why have prices for cobalt

Why have Prices for Cobalt and Lithium been Declining?

ChAI
Published by ChAI
Mar 9 2023
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According to a report published by Goldman Sachs in February 2023, electric vehicles are forecast to climb from 2% of global vehicle sales in 2020 to 61% by 2040. This increase would mean that over 70 million EVs would be sold annually, compared to around 2 million in 2020. Despite this massive growth forecast for the electric sector, prices for Cobalt and Lithium have slumped in recent months. LME Cobalt was trading at over $81,000 per tonne at the start of May 2022 but has since dropped to $33749/t, while prices for Lithium Carbonate, the key compound used in manufacturing lithium-ion batteries, have declined from over $80,000/t in November 2022 to just over $50,000 at present. Over the past decade, these two commodities have become synonymous with the electric vehicle revolution and have at times appeared to be on an unending upward trend. So, what has changed and what does this mean for the outlook for these metals?

High Prices Cure High Prices

The old adage of commodity markets that ‘the cure for high prices is high prices’ remains as relevant as ever and is a reason behind the recent decline in prices for both Cobalt and Lithium. For much of the last decade, there have been widespread fears of impending scarcity for both materials due to global supply being unable to keep pace with unrelenting demand. However, the premiums for producing these commodities has ushered more and more players into the game, and investment in production capabilities is now starting to impact prices.

In 2023, the global cobalt market is forecast to have a significant supply surplus. According to Reuters, global supplies of refined cobalt are expected to climb 24% year-on-year against 2022 to reach 210,000 tonnes. Meanwhile, demand is predicted to increase by only 8% to 205,000 tonnes. The massive increase in supply primarily stems from increased mining capacity in the Democratic Republic of Congo, which accounts for over 75% of global cobalt production. As noted by Bloomberg, Indonesia has also become a significant contributor to the cobalt market since 2020 and this pattern is expected to continue in the upcoming years. This massive increase in cobalt mining capacity, 42% globally between 2020 and 2022, demonstrates the power of high prices as an incentive for Glencore and other cobalt mining companies to ramp up production to take advantage of the metal’s value. This supply increase has, however, now led to the surplus which has crashed prices again.

Lithium mining is undergoing a similar wave of investment, and the metal has achieved such a status that locating new deposits is a major coup for any country. Already in 2023, as reported by Mining Technology, the Indian Ministry of Mines announced the discovery of 5.9 million tonnes of inferred lithium ore, while Iran reported just this week that they have discovered an estimated deposit of 8.5 million tonnes of ore which would make it the second largest site in the world. While Lithium is not set for the same levels of surplus as Cobalt, the high prices the metal has commanded have similarly led to an increased supply which has since lowered the market price.

Prices for cobalt

The China Effect

China has had a major impact on the prices of cobalt and lithium in commodity markets. Chinese battery producers are shifting away from nickel, cobalt, and manganese (NCM) chemistry to lithium iron phosphate (LFP) batteries due to higher production costs, as reported by Reuters. While this is good news for EV manufacturers, it further weakens cobalt demand, which will not grow exponentially as some had previously expected. China has become the leading nation for lithium-ion battery production, and the cost-cutting switch in China has already led to similar techniques being replicated elsewhere in the world, further denting the demand for cobalt and putting downward pressure on its prices.

However, the impact on cobalt prices is not the only issue. There are also demand-side issues for electric vehicle (EV) materials in China. Reuters reported that in January, sales of new energy vehicles, including pure battery EVs and plug-in hybrids, fell by 6.3%, which is a sharp contrast to the blistering 90% growth seen in 2022. This decline in sales can be attributed to a variety of factors, including the decision by some local governments to reduce subsidies for new energy vehicles and the economic slowdown in China around the Lunar New Year.

Cobaltlmequarterlyaverageforecast

ChAI Quarterly Average Forecast for LME Cobalt prices, 09/03/23

It is important to note that the EV market is suffering outside of China as well. Tesla has recently cut prices for its two most expensive vehicles, and while the brand is often seen as the standard-bearer for the EV revolution, these recent markdowns are the fifth time that Elon Musk’s company has adjusted its prices this year according to Reuters. Price reductions such as this demonstrate the impact of the more challenging global economic situation, and its subsequent effect on demand for lithium and cobalt. ChAI’s outlook for LME cobalt prices, shown above, signals how the weaker economic environment could continue to depress prices throughout the year.

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