The End of Cobalt’s Battery-Powered Rise – Is the Bubble Bursting?

The cobalt market is experiencing a dramatic decline, causing stress for miners and offering a temporary respite for car manufacturers. Cobalt prices reached a peak in May of 2022 due to the rising demand for electric vehicles, but have since dropped more than 50% because of a decrease in purchasing from the Chinese electronics industry. The fall in demand from this sector is significant, as the cobalt used in electronics such as laptops and phones is much higher per battery than in electric vehicles. Additionally, car manufacturers are shifting to battery chemistries that don’t require cobalt, further moderating the demand growth for cobalt.

The slump in cobalt prices illustrates the rapidly changing dynamic between buyers and sellers in the expanding markets for battery metals. Michael Widmer, head of metals research at Bank of America Corp, says carmakers are eager to get rid of cobalt, while they’re doing everything they can to get hold of lithium, which is still trading at high levels. The pressure is particularly intense for cobalt hydroxide producers, who are only getting paid for just over half the cobalt contained in their product, down from about 90% a year ago.

The decrease in cobalt prices is a result of shifts in pricing techniques, with the main producer, Glencore, now utilizing floating references based on current discounts in the spot market for most of its production. This approach has diminished the likelihood of buyers abandoning unprofitable agreements but has also heightened Glencore’s susceptibility to the fall in prices and demand.

Glencore is selling cobalt hydroxide at its lowest-ever price compared to the finished metal in some contracts, according to sources. Despite this being a small issue for Glencore due to its other profitable ventures, the prices it’s receiving for cobalt hydroxide are reaching levels seen in 2019, when its trading business experienced a loss of $350 million.

The difficulties in cobalt’s fluctuation reflect the growing pains being experienced in the battery metals industry by miners, consumers, and financiers. Unlike larger commodity markets, cobalt has been difficult to hedge in large quantities, making its fluctuations more challenging for car manufacturers and miners. However, buyers and sellers are now turning to a cobalt contract offered by CME Group to mitigate their price risk exposure, leading to a potential transformation in the way the industry manages its price risks.

Additionally, lithium trading on the exchange is also increasing, and although the volumes are still small, it is expected to play a larger role as the electric vehicle industry grows. According to Mr. Widmer at Bank of America, having contracts like these will be critical in managing price volatility and risk in these markets.