By Benedikt Sobotka, CEO of Eurasian Resources Group
- 2021 NEV sales are on track to be around 1.5 times greater than projected just a year ago
- Global cobalt supply may struggle to keep pace with surging cobalt demand
- Attention is increasingly turning to the traceability of cobalt and eliminating child labour in the supply chain – supported by industry initiatives such as ReISource, the Global Battery Alliance and the Cobalt Action Partnership
- Cobalt production volumes are dependent on the pipeline of copper and nickel rather than the underlying cobalt demand
New electric vehicle (NEV) sales surged by 139% YoY from January to August and are on track to break the six million mark this year. However, looking back at forecasts from a year ago, it becomes apparent that few analysts expected sales to even break the four million mark this year.
2021 is not an isolated case. In fact, there is a clear theme to the evolution of NEV forecasts in recent years: they are recurrently upgraded. In view of this, we are confident that the trend of underestimation will continue into 2022, especially as the headwinds of the semi-conductor chip shortage and the myriad of other automotive supply chain bottlenecks recede.
Moreover, we detect a strong wind of change in the US, where electric vehicle adoption has lagged behind that of Europe and China in recent years. The US Administration’s executive order targeting a 50% electric vehicle share in 2030 has quickly been echoed by the announcement of ambitious production targets by industry heavyweights Stellantis, Ford and GM. With the US having firmly crossed the chasm, global EV penetration is set to soar, strongly supporting cobalt demand growth.
Aside from booming EV demand, the current energy crisis in Europe and China highlights the complexity of the transition to renewable energy. Battery energy storage systems (BESS) will have an increasingly significant role to play in this transition. BESS allow intermittently generated electricity to be stored for long periods of time, and with very short activation periods. Rho Motion estimates that total BESS capacity will quadruple from 7GWh in 2020 to 41GWh in 2025, of which lithium-ion batteries will be the leading technology.
However, strong cobalt demand growth will not be solely limited to the battery sector in 2022. Metal consumption – which accounts for around a quarter of all end-use cobalt demand – is set to be bolstered by a strong recovery from the aerospace sector amidst easing pandemic restrictions. The International Air Transport Association (IATA) forecasts that international air travel demand will double YoY in 2022.
A further potential upside risk to metal demand next year is another purchasing spree by China’s State Reserve Bureau (SRB). In recent years, the SRB has been actively buying cobalt metal units to ensure supply stability and it is entirely realistic that it will come back to the market for more material in 2022.
Mined cobalt supply growth is becoming increasingly unresponsive to booming demand
The issue at the heart of industrially mined cobalt supply is that it is almost exclusively a by-product of copper and nickel mining. This means that cobalt production volumes are tied to their core-product rather than underlying cobalt demand.
In view of this, industrially mined cobalt supply is unable to proportionately respond to the current boom in end-use demand. Our internal analysis shows that the recent announcements of restarts and capacity expansions at major operations in the DRC are too little, too late. Moreover, bringing new production capacity on stream takes considerable time and is subject to strict government oversight, as is the case in the DRC.
While industrially mined cobalt output is poorly responsive to demand, historically, artisanally produced volumes have been much more dynamic, swiftly ramping up during periods of high demand and prices.
However, this situation has changed drastically in response to growing consumer scrutiny of the cobalt supply chain, more recently facilitated by new tracing solutions involving major industry players, such as the Battery Passport and ReISource.