Cobalt Market Faces Pressure Amid Oversupply and Shift to LFP Batteries

The cobalt market is currently under pressure, with supply outpacing demand and prices reflecting the shift. Cobalt sulfate prices have been gradually declining, suggesting a slowdown in demand, especially from China's passenger electric vehicle (PEV) sector. This shift is attributed to the growing preference for lithium-iron-phosphate (LFP) batteries, which do not require cobalt.

According to S&P Global Commodity Insights, the European cobalt price has remained stable at about $11.00 per pound since mid-October, though trading activity has been subdued. China's cobalt metal price saw some stabilization after hitting a low in late September, increasing by 5.6% between September and November, despite fluctuations driven by stronger feedstock costs. Nevertheless, the production margins for cobalt sulfate from imported cobalt hydroxide have turned negative, impacting China’s overall cobalt sulfate output, which dropped by 28.1% from January to October 2023 compared to the same period last year.

The trend toward LFP batteries continues to reshape the cobalt market. By October 2024, cobalt-containing batteries made up only 20.6% of vehicle installations in China, a significant drop from nearly 50% in 2021. This transition has led to reduced demand for cobalt in battery manufacturing.

Despite these challenges, cobalt remains an essential element in many battery chemistries due to its stability and safety benefits. In 2023, demand for cobalt-containing chemistries grew by 15% year-over-year to approximately 500 GWh, accounting for 55% of the total battery demand. Although this is down from 63% in 2022, cobalt's role is expected to endure as a crucial component in the medium to long term.

The demand for cobalt was primarily driven by high and mid-nickel chemistries, which saw a growth of 32% and 15%, respectively, in 2023. In contrast, cobalt-free chemistries, led by LFP, gained ground, now comprising 45% of the global cathode demand. LFP batteries have become popular globally, particularly in China, due to their lower cost and reduced reliance on critical minerals like cobalt and nickel.

However, cobalt continues to play a vital role beyond the battery sector, being used in aviation, energy storage, and electronics, with its recyclability contributing to sustainability. The ongoing scrutiny over ethical and environmental concerns regarding cobalt sourcing, especially from the Democratic Republic of the Congo (DRC) and Indonesia, remains a key challenge for the market.

The outlook for 2024 indicates a widening cobalt market surplus, with S&P Global Commodity Insights forecasting it to reach 53,000 metric tons, more than doubling earlier predictions. Prices are projected to decline further, with estimates suggesting a drop to $12.72 per pound by 2028. While automakers increasingly favor LFP batteries, cobalt-containing batteries are likely to make up less than 10% of the total battery mix in the future.

Production is also set to rise, with major contributions from Indonesia’s high-pressure acid leaching (HPAL) projects and increased output from the DRC. China’s CMOC, a significant cobalt producer, exceeded its 2023 full-year production guidance by 21% in the first nine months of the year, reflecting strong growth in global supply.

Cobalt’s role in high-performance batteries remains significant, particularly in Western markets, but its future will depend on navigating the balance between cost, sustainability, and evolving battery technologies.