China is set to step up its grip on global cobalt supply as the price of the key EV battery metal hits a 32-month low due to rising production.
Over the next two years, China’s share of cobalt production is expected to reach half of global production, up from 44 percent at present, according to a report by Darton Commodities, the UK-based cobalt trader.
This increase comes despite attempts by the West to gain control of the supply chains of critical minerals such as cobalt, lithium and nickel, which are essential for Production of batteries for electric vehicles.
China’s refining capacity reached 140,000 tons in 2022, more than double what it was five years ago, as refining volumes in the rest of the world stalled at 40,000 tons, leaving Asia’s largest economy with 77% of global refining capacity.
ChinaCobalt’s growing role in cobalt supply comes as the metal’s 12-month rally has reversed with prices falling 60 percent to $16/lb from their peak above $40/lb in May.
“A lot of things came together to push the market down: easing logistical challenges, weak consumer electronics sales, and a technology shift towards low- or no-cobalt cobalt EV batteries,” said Caspar Rawls, director of data at Benchmark Mineral. intelligence. , pricing agency.
In 2022, global cobalt production increased by 23 percent, or 35,000 tons, compared to the previous year, according to Darton. This was as Swiss commodity group Glencore ramped up production at Mutanda, the world’s largest cobalt mine in the Democratic Republic of the Congo, and Indonesia became a major producer.
The surge in supply more than doubled the growth in demand, causing prices to collapse. Demand has been impacted by low sales of portable electronics worldwide, draconian Covid-19 restrictions in China and a shift in the Chinese electric vehicle market towards lower range batteries that do not use cobalt.
One trader said it was a “double whammy” as Chinese cobalt refineries and consumers cut stocks due to weaker consumer demand, but now the market was asking “when China will return” in terms of demand.
Lower cobalt prices provide some relief for automakers concerned about the cost of raw materials for electric batteries, but create big problems for projects outside of China.
In the US, Washington’s concerns about China’s dominance of the cobalt supply chain have led to significant incentives to produce cobalt domestically or in countries deemed friendly to America. However, it will take years for these incentives, enshrined in the Inflation Reduction Act, to bear any fruit.
Automakers are pushing to develop battery chemistries that use less cobalt over concerns about child labor in the DRC, which accounts for three-quarters of global shipments.
Cobalt is a by-product of copper or nickel mines and prices remain relatively high, meaning supply cannot be cut quickly even if cobalt prices fall.
However, industry sources said that small-scale informal mining, which accounts for 15 to 30 percent of the DRC’s production, has already declined, with some artisanal producers switching to copper instead.
Stephen Culmin, chief financial officer of Glencore, said in a phone call with an analyst last month that “we will look to dynamically manage cobalt production and sales” to drive lower prices.
Cobalt prices could fall even further if Tenke Fungurume, the world’s second largest cobalt mine owned by China’s CMOC, is allowed to resume exports from the DRC following a tax dispute that led to an export ban last July. Despite the ban, the company continues production, stockpiling between 10,000 and 12,000 tons of material, which is 6 percent of last year’s demand, according to market estimates.
The projected increase in China’s share of global cobalt production is largely due to the launch of the CMOC Kisanfu copper-cobalt mine in the DRC this year.