The cobalt market prepares for another ride

Cobalt investors have had a wild ride the past 3 years, as prices soared in 2017 then crashed in 2018/2019. For those investors with a longer time frame, the long term demand/supply opportunity remains intact. That is, post 2022 we may start to see increasing cobalt deficits as the electric vehicle (EV) boom takes off. One reason 2022 is significant is that is when electric vehicles are forecast to cost the same as conventional cars. At this point, the demand for electric cars should explode. And speaking of ‘explode’, cobalt is an essential part of the lithium-ion battery that stops thermal runway and explosion.

Cobalt 5 year price chart

Cobalt demand forecasts

Almost all industry experts agree cobalt will be needed in future lithium-ion batteries and in increasing volumes. Industry expert Benchmark Minerals say cobalt demand will outstrip the decline from cobalt thrifting. Experts agree cobalt thrifting will reduce the amount of cobalt in a 100% battery electric vehicle (BEV) from around 20-33kgs (NMC 1:1:1 chemistry) to around 8-12kgs cobalt (NMC 6:2:2 chemistry) over the next 5-10 years. Tesla’s low cobalt NCA battery is alleged to have as little as 6kgs cobalt, but as we know Tesla’s have also had several issues with battery fires. Most large car OEMs will not want to risk large scale battery recalls and fire risk, and hence will go with NMC 6:2:2, and possibly in some cases NMC 8:1:1.

NMC refers to nickel, manganese, and cobalt. The NMC 6:2:2 cathode is 2 parts cobalt or 20% cobalt. Again most experts see solid state batteries in electric cars as not likely in the next decade. All of this means cobalt is most likely here to stay for the next decade at least and possibly many decades beyond that, as the NMC battery is the battery of choice. The NMC lithium-ion battery is improving each year with lower costs per kilowatt hour (kWh), thereby lowering the costs of EVs each year.

Despite thrifting, cobalt demand is set to surge driven mostly by the EV boom. The forecast suggests by as early as 2022 or 2023 we will start to see cobalt deficits. Furthermore, the deficits are forecast to grow substantially each year.

Bloomberg New Energy Finance cobalt supply and demand forecast (assisted by Darton Commodities)

Source: BNEF

The key take away here is that should the EV boom continue to grow rapidly, cobalt is likely to go into deficit again as soon as 2022/23.

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