CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.40% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Scan to Download iOS&Android APP

Cobalt price forecast: Will rising supply pressure the market?

By  Yoke Wong

Edited by Vanessa Kintu


Updated

Share this article
Tags

What You Need to Know

The week ahead update on major market events in your inbox every week. Subscribe
cobalt stone on black isolated background.
Cobalt price forecast: Will rising supply pressure the market? – Photo: Shutterstock

Supply tightness amid strong demand driven by rising global electric vehicle (EV) sales continue to boost cobalt prices in the second half of this year. The element is a crucial component in the batteries used to power those vehicles.

Cobalt prices have more than doubled since the beginning of the year. According to the price reporting agency (PRA), the benchmark standard grade cobalt metal price started the year at $15.30 a pound (lb) and has increased throughout most of the year to above $30/lb in December.

The Chicago Mercantile Exchange (CME) launched cash-settled futures on its COMEX exchange in late 2020. The Cobalt Metal (Fastmarkets) futures contract prices are based on the price reporting agency’s indices.

The December CME cobalt contract settled at $32.24/lb on 6 December, up 4.5% from the previous week.

Although prices have been rising throughout this year as consumers restocked, cobalt metal value is still well below the 10-year high of $45/lb in 2018. And, given the volatile nature of the cobalt market, prices could fall as seen in 2019, when lower-than-expected demand pulled the metal as low as $12/lb.

Will cobalt prices continue to rise this year and beyond? Read on to find out the cobalt market outlook and cobalt price trend.

Production overview

 

 
 

Cobalt is primarily mined as a by-product from non-ferrous metal copper and nickel. More than 70% of the world’s cobalt supply is sourced in the Democratic Republic of the Congo (DRC) in central Africa, according to the world largest cobalt producer and trading firm Glencore.

Besides Glencore, which operates the Mutanda and Katanga mine in the DRC, Chinese producers Huayou and China Molybdnum Co. (CMOC) are also present in the country.

When cobalt prices crashed in 2019, Glencore shut its Mutanda mine as the metal’s prices were below production cost and the operation was no longer profitable. Cobalt output at Mutanda mine was at 25,000 tonnes in 2019, making it the world’s largest cobalt mine, wrote CME. As cobalt demand and prices recovered, Glencore announced in June this year that it will restart the mothballed Mutanda mine and production is expected at the end of 2021.

According to Glencore’s production guidance announced during the group’s investor update on 2 December, cobalt output is expected to reach 32,000-38,000 tonnes in 2021, rising to 45,000 to 51,000 tonnes in 2022. Cobalt production in 2023 and 2024 is forecast at 50,000 tonnes a year.

A majority of the group’s annual production is from the Katanga cobalt circuit, while the by-product output from Glencore’s nickel assets is expected to remain stable over the forecast period of 2021 to 2024. According to the US Geological Survey (USGS) and industry consultancy Fitch Solutions data, the global cobalt mine output is expected to grow in 2022 to 2030.

DRC Cobalt mine production in 2021 is expected at 102,600 tonnes, up 8% from the previous year. Output is expected to reach 107,730 tonnes in 2022 and continue to rise to 116,350 tonnes in 2023.

Although Fitch is optimistic about the new cobalt projects that are expected to come online in the next decade, there are also risks that these projects may not deliver.

“Many are still in the pre-feasibility stage, especially in Australia, and may not reach fruition in the end due to lack of finance or environmental opposition for instance. Global cobalt projects are also likely to face environmental scrutiny, whereas the possibility of batteries without cobalt might dampen the metal’s demand outlook and prices altogether,” said Fitch Solutions.

Cobalt market in deficit in 2021

Despite the ramp-up of production in Mutanda, the market is expected to be in deficit in the short-term as production will not reach the market in time for consumption.

US100

11,479.10 Price
-0.780% 1D Chg, %
Long position overnight fee -0.0138%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 1.5

Oil - Crude

85.52 Price
-0.370% 1D Chg, %
Long position overnight fee 0.0236%
Short position overnight fee -0.0430%
Overnight fee time 21:00 (UTC)
Spread 0.03

BTC/USD

20,043.00 Price
-1.260% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 60.00

Gold

1,705.96 Price
-1.000% 1D Chg, %
Long position overnight fee -0.0157%
Short position overnight fee 0.0056%
Overnight fee time 21:00 (UTC)
Spread 0.18

“As for any commodity that is dug out of the ground, producers do not always have the spare capacity to instantly respond to changes in demand,” said CME in July.

As a result, several analysts, including Fastmarkets, expect the cobalt market to be in slight supply deficit in 2021 and 2022.

According to S&P Global Market Intelligence, the cobalt market deficit in 2021 is estimated at 8,000 tonnes, compared to a surplus of 4,000 tonnes in 2020. The market will move to a surplus of 1,000 tonnes in 2022.

Lower cobalt prices in 2022

Despite the forecast deficit, analysts expect the cobalt price in 2022 to be lower than this year.

S&P Global Market Intelligence’s forecast in September predicted cobalt prices would soften in the December quarter to an average price of $21.46/lb in 2021, “followed by an 11% price correction in 2022 as supply flows normalise from mine expansions in Democratic Republic of Congo.” 

In contrast, Fastmarkets expects “prices to remain elevated in 2022, but below current levels.”

According to algorithm-based price forecast service provider Trading Economics, cobalt is expected to trade at $65,963.79 a tonne ($29.92/lb) at the end of 2021, but price is forecast to fall to $62,812.44 ($28.49/lb) in 12 months’ time.

BloombergNEF’s cobalt price forecast 2022 to 2025 in July was less bullish as production ramped up in the DRC. “The cobalt metal price could average $45,000 per ton year-end 2021. With the market projected to be relatively in surplus this decade, BloombergNEF expects prices will hold at an average of $44,000 per ton up to 2025,” it said.

Source: S&P Global Market Intelligence, Trading Economics, BoombergNEF

Rising electric vehicle sales boost cobalt demand

Cobalt is one of the key metals in lithium-ion batteries, and the battery sector accounts for 57% of cobalt demand in 2020. The use of cobalt is predicted to rise in the next 10 to 15 years as the adoption of EVs increases.

Cobalt is also used in nickel-based alloys and the sector accounts for 13% of total demand in 2020, according to the Cobalt Institute. The third-largest end-use market for the metal is tool materials, but demand fell 12% year-on-year in 2020 because of lower global industrial production.

According to Fitch Solutions, “the end use of cobalt is primarily in portable electronics (36.3% of global consumption), such as smartphones and laptops, while automotive applications also account for a major share (23%).” Fitch Solutions expects automotive applications to drive cobalt demand in the coming decades.

According to S&P Market Intelligence, global cobalt demand is expected to rise to 195,000 tonnes in 2022, up 14.7% from 170,000 tonnes in 2021 and 47.7% from 132,000 tonnes in 2020.

Despite the forecast of increased demand for cobalt, changes in battery chemistry could dent the cobalt outlook.

To reduce the exposure of price volatility and supply fluctuation, some battery manufacturers have reduced the volume used in the battery cathode such as with the lithium iron phosphate (LFP) batteries. In addition, nickel cobalt manganese (NCM) batteries also have a lower cobalt content.

“Second generation lithium iron phosphate (LFP) batteries have become increasingly popular in China and look set to be used more extensively outside China too. In China, LFP batteries’ market share climbed to 52% in the first eight months of 2021, up from 39% in 2020 and 33% in 2019. LFP’s gain means slower demand growth for cobalt. In addition, the trend is toward using higher nickel weighted-nickel-cobalt-manganese (NCM) batteries, which have lower cobalt content,” said Fastmarkets.

FAQs

Is cobalt a good investment?

The use of cobalt is widely expected to rise over the next decade because of increased electric vehicle sales, which is likely to support the metal’s demand and prices. However, the cobalt market is volatile, and prices have crashed in the past.

Whether cobalt is a good investment for you or not will depend on your investing goals and portfolio composition. You should do your own research and never invest what you cannot afford to lose.

Will cobalt prices rise or not?

Several analysts believe cobalt prices will fall in 2022 as more production comes on stream, however, analysts’ forecasts can be wrong and have in the past been inaccurate. Remember to always do your own research. And never invest money you cannot afford to lose.

What factors affect the price of cobalt?

Cobalt prices are affected by its supply and demand. A fall in battery demand will be bearish for the metal while disruption to its production will generally be bullish for the market.

What You Need to Know

The week ahead update on major market events in your inbox every week. Subscribe
The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 450.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading