An update on cobalt’s falling price contrary to the outlook

• Reasons for the fall in prices of cobalt
• Will the prices continue to fall?

In Televisory’s earlier blog, ‘Scarce yet essential for EVs, cobalt hogs the limelight’, we concluded by stating that ‘if the numbers estimated for EV (electric vehicle) market hold true, the demand for cobalt will continue in the upcoming years.’ The price of cobalt had more than tripled from 2016 to 2017 because of the rising demand from the EV sector and an unmatched supply. There was a dearth of supply due to social and political conditions in Congo, wherein a majority of mines are concentrated. However, quite contrary to the outlook since June 2018 to March 2019, the cobalt prices have fallen by 157%.

Through this blog, Televisory has tried to analyse what has changed in the last year that has pushed the prices down. Firstly, and most importantly the EV industry has not kept pace with the predicted numbers and growth. The industry has of course evolved but has not brought about the revolution as was anticipated. The growth of sales in EVs in the US is now projected to be 12% (as per Mr Loren McDonald, an EV analyst) from 2018 to 2019 as compared to the sizeable growth of 81% from 2017 to 2018. The global sales rose by just 38% in 2019 as compared to 50% in 2018 and are depicted through the below graph, thus, confirming the turnaround in the trend for the demand of EVs.

Moreover, another reason adding to the slow growth could be the reduction of subsidies from China (wherein the production has been the highest) for shorter-range electric vehicles. It is providing more incentives to longer-range vehicles in order to encourage innovation and technological upgradation. The subsidies on vehicles running below a range of 250 miles have been cut by over 50% and thus, has put a lot of car manufacturers in a tough spot. This would imply that the cost of EVs would become higher as the price is passed onto customers, which could slow the growth in China as well in 2019.

Furthermore, another crucial factor for falling prices of cobalt is the existence and continuance of artisanal mining of cobalt in Congo. People in Congo mine cobalt manually without actually being employed by mining companies and with no provision of specialised equipment. Many big companies have pledged to discourage such practices, however, as per CRU group, a company providing business intelligence on metals, such metal is being bought by Indian and Chinese companies at the subsidised process. Artisanal mining has thus increased the supply levels and caused the prices to dwindle.

Lastly, the prices soared in the past two years because of the stockpiling of the metal by China. Everyone was hoarding the metal so that they could earn profits by increasing its value. However, as mentioned earlier, the production for EVs did not build up as much and as soon and Chinese stopped stocking the metal, thus adding to the supply. The supply shortage did not turn out to be as large as was expected, which again caused the prices to plummet.

As stated in Televisory’s earlier blog, cobalt’s production is driven by lithium-ion batteries used in electric vehicles. Hence, as long as large automakers (like Volkswagen, Tesla, etc.) stick to their resolve to increase the production of EVs and governments across the world continue to take initiatives to promote EV sales in order to protect the environment, the demand for cobalt will stay.

On the supply side, mining companies responded to the rising demand in previous years by expanding their capacities/production and are now ready to cater to the market. Glencore’s Katanga mine, refurbished last year is expected to add 26,000 tonnes of cobalt in 2019 as compared to only 11,000 tonnes in 2018. Eurasian Resources Congo Metalkol facility will also add to the supply of cobalt with 24,000 tonnes of production capacity. Therefore, there is no shortage of cobalt in the short-term unless the EV numbers shoot up alarmingly high. The pace at which the adoption of EVs happen will be a determining factor for the swing in cobalt prices. The price fluctuations are thus expected to occur in the near future.