Column: Another cobalt bust but this time it’s different
The market for cobalt, the essential battery metal that powers today’s electric vehicles (EVs), is experiencing another significant downturn. This wave of overproduction, unlike the artisanal mining surge that led to previous downturns in 2018-2019, is primarily driven by the actions of China’s CMOC Group. The situation raises questions about the future of cobalt as an integral component of the battery supply chain, especially as global manufacturing dynamics continue to shift.
### CMOC’s Impact on the Cobalt Market
Chinese company CMOC (China Molybdenum Corp) has dramatically ramped up its cobalt production in the Democratic Republic of Congo (DRC), the world’s leading cobalt supplier. With its copper mines at Tenke Fungurume (TFM) and KFM now at full throttle, CMOC nearly doubled its cobalt output, contributing to an excess supply of nearly 60,000 tons to a market already exceeding 200,000 tons. The company’s production was astonishingly high in 2022, reaching 114,165 tons, with plans to sustain output between 100,000 and 120,000 tons in 2023.
This remarkable increase underscores CMOC’s dominance in cobalt production, as it produces cobalt primarily as a by-product of its copper mining operations. Given that approximately 98% of the world’s cobalt supply originates from copper or nickel production, the fortunes of cobalt are tightly intertwined with those of these metals.
#### Growing Commodities and Regional Shifts
In tandem with the surge in cobalt production, copper prices hit record highs last year, leading CMOC to increase its output even further. This has resulted in an oversupply of cobalt, further exacerbated by Indonesia’s rapidly growing nickel production, which also contributes to by-product cobalt supply. This dual supply problem suggests that cobalt’s market dynamics may struggle to regain equilibrium without significant changes in consumption patterns.
### A Changing EV Landscape
Despite its essential role in EV batteries, cobalt’s demand outlook appears less optimistic than it once did. The landscape for electric mobility is shifting, particularly in China, which is seeing a marked increase in hybrid vehicle sales that utilize smaller batteries. Moreover, lithium-iron-phosphate (LFP) batteries, which require no cobalt, are capturing a growing share of the market.
In Western markets, while the growth rate for EV sales remains steady, there is an observable trend toward low-cobalt battery chemistries due to cost considerations and ethical concerns surrounding cobalt mining practices, particularly in the DRC. According to Adamas Intelligence, the total quantity of lithium used in new energy vehicles surged by 26% year-over-year in late 2022, whereas cobalt deployment remained stagnant. This stagnation hints at a potential decline in future cobalt requirements.
### A Market in Distress
As a result of the soaring supply and dimming demand, cobalt prices have plummeted, falling victim to a significant supply surplus that analysts predict will continue at least through 2028. The irony of the current situation is stark: while the global market is saturated with cobalt, the West is becoming increasingly reliant on imports from China, raising strategic security concerns over the supply of this critical mineral.
For military applications, cobalt remains crucial; it’s classified as a critical mineral by both the United States and the European Union, prompting initiatives to establish independent supply chains. However, declining prices are hindering efforts such as those by Jervois Mining, which recently halted its Idaho project due to unviable market conditions, as it struggles to compete with the prices set by Chinese producers.
### Conclusion
The cobalt market finds itself at a crossroads marked by oversupply and shifting demand dynamics. While the current glut highlights the impact of dominant players like CMOC, the need for alternative sourcing and market strategies is becoming increasingly urgent. If the West wishes to develop a robust cobalt supply chain independent of Chinese reliance, innovative pricing strategies and new production methodologies will be essential. As the EV landscape evolves, cobalt’s role in the market may need to be reevaluated, paving the way for a more sustainable and resilient future.