Cobalt futures price: EV demand surge ensures bright long-term forecasts but short-term questions remain
US cobalt futures price fell to a 16-month low over the past month as the looming global recession reduces demand for the metal used in batteries. Yet, the increased adoption of electric vehicles may support prices in the long term.
The November contract for standard grade cobalt traded in the Chicago Mercantile Exchange (CME) settled at $22.99 per pound (lb) on 18 November 2022, the lowest since July 2021 and down 11.6% compared to a month ago.
So how do cobalt futures work and what’s next for the silvery metal? Here we take a look at the factors that are shaping cobalt futures price prediction and market outlook.
What are cobalt futures?
Cobalt futures are derivative contracts with standard grade cobalt as the underlying assets. The metal is a key material in nickel-manganese-cobalt (NMC) batteries, which are used to power a wide range of products from consumer electronics to electric vehicles.
The contracts can be traded on exchanges such as the London Metal Exchange (LME) and the CME. Those cobalt futures traded on the CME are based on the price reporting agency FastMarkets’ indices on an in-warehouse Rotterdam basis. The contracts are denominated in US dollars and cents per pound.
According to the CME specification, the grade of cobalt must be at least 99.8% pure. The contracts are listed monthly for the current year and the next three calendar years.
The FastMarkets-settled cobalt futures contracts on the CME were launched in December 2020 amid increased market demand for hedging and risk-management for the metal.
Recession weighs on global cobalt metal demand outlook
Cobalt futures price has been falling since the second quarter of 2022, as growing recession fears dampened consumer demand for electronic goods. The rising global inflation has also cut consumer spending power, reducing overall demand for electronic goods.
In the first quarter this year, pent-up consumer demand for electronic goods and vehicles post-Covid were pushing cobalt futures prices higher. According to CME cobalt futures history data, the metal price peaked at just under $40/lb in late April before falling in the subsequent months.
The cobalt futures price peak in April this year remained below the 10-year high of $45/lb in 2018. The metal prices have been volatile over the past five years, falling as low as $12/lb in 2019.
In addition to the macroeconomic impact brought about by recession and inflation, the zero-Covid policy implemented by China, the world largest metal consumer, has also cut demand for cobalt.
The stiff lockdown measures imposed across China since March 2022 have significantly slowed manufacturing activities in the country, causing a sharp decline in its economic growth.
With signs of China easing its zero-Covid policy, the outlook for the cobalt futures market has improved over the past two weeks, but concerns over the slowing global economy remained.
According to the Cobalt Institute, there are risks to the demand outlook for cobalt in the short term. In their third-quarter update, the institute said:
The agency pointed out that supply disruption in Russia, the world’s second largest producer, could cause regional supply tightness, noting:
According to Statista, the world's largest cobalt mine producer in 2021 was the Democratic Republic of Congo (DRC), with 120,000 metric tonnes output, followed by Russia at 7,600 tonnes and Australia at 5,600 tonnes.
Despite the negative short-term outlook, the increased adoption of electric vehicles (EV) globally could support cobalt prices in the longer term, said the Cobalt Institute:
Cobalt futures forecast for 2023 and beyond
As a result of the geopolitical uncertainty and looming recession, analysts were mixed on the cobalt futures price in the short term.
The Cobalt Institute believed the overall commodity prices will fall because of the looming global recession, but did not give any price indication.
In contrast, economic data provider Trading Economics, as of 21 November, expected the average cobalt prices to rise to $50,973.05/tonne ($23.12/lb) by the end of the fourth quarter, falling to $48,136.31 ($21.83/lb) in 12 months’ time.
Note that price predictions can be wrong and shouldn’t be used as a substitute for your own research. Always conduct your own due diligence, looking at the latest cobalt futures news, a wide range of commentary, technical and fundamental analysis. Remember, past performance does not guarantee future returns and never trade more money than you can afford to lose.
FAQs
How are cobalt futures priced?
Cobalt futures traded on the CME are priced by transactions in the physical market, which are based on indices published by price reporting agency FastMarkets.
Will cobalt prices go up or down?
Nobody can say for sure whether cobalt prices will go up or down in 2023. The market is volatile, and price movements could depend on supply and demand.
How to invest in cobalt futures
You can invest in cobalt futures through brokers registered to trade on futures exchanges. Retail investors may also gain exposure through investing in stocks of listed cobalt producers and miners. Note that investing in cobalt contains risk, and whether cobalt is an appropriate investment for you depends on your risk tolerance, experience in the markets and overall strategy. Never risk more money than you can afford to lose.
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