Cobalt Downstream Market Is Growing, And Industry Supply and Demand Are Tight

Cobalt is non-renewable and the reserves are relatively concentrated. In the context of market recovery and tight supply, cobalt prices have continued to rise in recent months. In the long run, the market demand for cobalt remains strong and the industry is expected to maintain steady growth.

Downstream Structure

In the cobalt demand structure, consumer electronics and power batteries are at the forefront. Data show that the global consumption of refined cobalt in 2019 is about 133,000 tons, of which 50,000 tons are used in the field of electronic products, accounting for 37%; 18,000 are used for power batteries, accounting for 14%. It is estimated that before 2025, 3C's cobalt consumption will be the mainstream. After 2025, the proportion of power batteries will gradually dominate.

Cobalt Consumption Will Recover

Affected by global public health events, various industries have been impacted to varying degrees, and the consumption situation of electrolytic cobalt used in alloy production has declined. Data shows that from January to November 2020, the cumulative export volume of domestic metal cobalt-related products was 854.6 tons, a decrease of 56.6%.

In 2021, the domestic cobalt supply will continue to remain tight. Driven by the rapid growth in the production and sales of downstream new energy vehicles, it is expected that the consumption of ternary materials and cobalt sulfate in the second quarter of 2021 will show a growth trend. At the same time, the overseas market's consumption of electric cobalt and other products is expected to recover. Under the assumption that the import volume of cobalt raw materials in the first half of the year will remain high, the domestic cobalt raw material supply is expected to remain tight. With the strengthening of downstream procurement, it is expected that the price of cobalt refined products will start to rise, repairing profitability.

New Energy Vehicle Market Growth Boosts Cobalt Demand

The rebound in the installed capacity of lithium iron phosphate batteries is good for the cobalt demand market. The cobalt consumption caused by the rebound in the installed capacity of lithium iron phosphate batteries can offset the consumption impact brought by the ternary cathode material.

Data show that from January to November 2020, the cumulative output of domestic power batteries was 68.3GWh, of which ternary batteries and lithium iron phosphate batteries are the main two categories. The former has a cumulative output of 40GWh, a cumulative increase of 20.5% year-on-year, and the latter has a cumulative output of 28GWh, a cumulative increase of 5.7% year-on-year. In terms of installed capacity, the cumulative installed capacity of ternary batteries was 32.9GWh, a cumulative decrease of 8.0% year-on-year; the cumulative installed capacity of lithium iron phosphate batteries was 17.5GWh, a cumulative increase of 13.0% year-on-year, exceeding the level of the same period last year. The installed capacity of lithium iron phosphate in the passenger car sector has increased significantly.

As the global penetration rate of electric vehicles continues to increase, the market demand for cobalt will increase steadily. China and Europe are the main consumer markets for electric vehicles. It is expected that from 2021, the above two regions will achieve a steady increase in the penetration rate of electric vehicles. It is estimated that by 2025, the penetration rate of electric vehicles in China and Europe will reach 23% and 21% respectively. The global sales of electric vehicles will exceed 12 million, and the corresponding cobalt demand will reach 65,000 tons, with a compound annual growth rate of 24.3% from 2020 to 2025. If a longer time period is considered, it is estimated that by 2050, with the continued growth of global electric vehicle consumption, the global demand for cobalt will increase to 507,000 tons.

5G Development Drives Market Growth in Cobalt Demand

Under the influence of global public health time, global online office and online education have greatly stimulated the demand for laptops and tablets. At the same time, many new mobile phone models have been put on the market. Due to the advance stocking of the industrial chain, the output of cobalt and lithium has exceeded expected. The centralized release of new products for 5G mobile phones may promote continuous improvement in terminal demand. In 2020, 5G will empower multiple areas, and 5G mobile phones will gradually become popular. Last year, more than half of the mobile phone market in China came from 5G mobile phones, and the proportion of shipments throughout the year was at a high level. With the gradual control of the domestic epidemic, offline stores began to operate one by one, and market demand continued to be released. 3C demand is expected to strengthen in the future, driven by the centralized release of new 5G mobile phones and the recovery of global consumer electronics demand.

Concentrated Distribution of Cobalt Production Capacity

Cobalt is non-renewable and resources are scarce. The global reserves and production are relatively concentrated. Data show that in the distribution of global cobalt raw material production, Congo provides the most power, with output accounting for more than 70%, far exceeding the second-ranked Russia. China's cobalt production accounts for only 1% of the world's total.

Congo's Cobalt Capacity Increase Is Less Than Expected, Global Supply Slows Down

Congo is the main source of global cobalt production. However, since 2019, cobalt prices have been fluctuating at the bottom, resulting in a significant reduction in supply and new capacity. Data shows that the output of cobalt in 2019 was 77,964 tons, a year-on-year decrease of 28.74%. By 2020, the cumulative cobalt production from January to October 2020 was 66,581 tons, a slight increase of 2.3% year-on-year. It is estimated that from 2020 to 2025, the average annual compound growth rate of cobalt supply in Congo will be 8.3%, and the supply will increase from 101,700 tons to 151,300 tons. The global supply of cobalt has slowed down and cannot keep up with the growth rate on the demand side.

Considering the impact of global public health incidents on the industry, both the supply and demand of the cobalt industry have been affected. In 2020, there will be a surplus of 4,015 tons of cobalt. With the gradual control of the epidemic and the expansion of vaccine coverage, various industries have gradually resumed operations. The market demand for cobalt is expected to recover quickly. With the popularity of 5G mobile phones, it is expected that the cobalt industry will experience a supply gap. Demand improvement and limited new capacity from 2021 to 2022 will expand the cobalt supply gap. With the release of existing production capacity, the supply and demand structure of cobalt will be improved. However, from 2024 to 2025, demand improvement is combined with new rigidity, where the gap is expected to continue to expand.

In the short term, the major manufacturers have obvious replenishment demand after the holiday. In the medium and long term, it is expected that the global new cobalt supply in the next two years is limited. With the accelerated penetration of the global new energy vehicle market and the demand for batteries from superimposed 5G mobile phones, the overall industry supply and demand are tight, and the price of cobalt is expected to rise.

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