Shrinking demand for electronics, electric vehicles sparks long-term surpluses

Shrinking demand for electronics, electric vehicles sparks long-term surpluses

LONDON - Shrinking demand from battery makers for consumer electronics and electric vehicles and mounting supplies has altered the landscape for cobalt, which is now expected to see many years of surpluses.

Expectations of surpluses are why prices of cobalt, which ensures batteries do not quickly overheat or catch fire, have gone down around $20 a lb since May when they touched $40 a lb, the highest since mid-2018.

Consumer belt tightening has resulted in a drop in demand for electronics such as mobile phones, which use lithium-ion rechargeable batteries with a cathode that typically contains 60 per cent cobalt.

According to International Data Corporation, worldwide phone shipments fell by 9.7 per cent to 301.9 million units in the third quarter of 2022 from the same period last year.

Cobalt was dragged down by weaker than expected demand in the second half of 2022, and faster growth in mine supply from the Democratic Republic of Congo DRC and Indonesia, said Macquarie analyst Jim Lennon.

Electric vehicle sales are strong. But the share of lithium iron phosphate batteries LFP has been growing at the cost of batteries that use nickel, cobalt and manganese cathodes NCM LFP batteries in electric vehicles. By 2027, the total is expected to be 42 per cent of the total, compared to 20 per cent of 3.2 million units in 2020.

There's been a bigger move towards LFP, particularly within China, which has had an impact on cobalt demand, said Benchmark Mineral Intelligence BMI analyst Caspar Rawles.

BMI expects to have a 5,000 tonne cobalt surplus this year and demand will be nearly 164,000 tons. The consultancy forecasts that there will be around 16,000 tons of surplus in 2023 and 2024.

Logisticsal problems due to COVID restrictions last year and 2020 resulted in tight supplies in DRC, the world's largest cobalt producer.

Trade Data Monitor shows that DRC exported more than 280,000 tons of cobalt to China in January-Oct this year, 17 per cent and 23 per cent higher than in the same period last year and 2020 respectively.

Macquarie's Lennon estimates global mine supplies of cobalt rose 12 per cent this year to 181,000 tonnes and expects cobalt market surpluses to be reached by 2027, starting with excess supplies of 4,200 tons this year.