Cobalt crashes – will it rise again?

From being the priciest and hardest-to-come-by, lithium-ion battery metal during the budding energy transition to a massive surplus and wavering demand, cobalt mining has had a nail-biting year as sales have stalled and prices have begun to fall (global benchmark cobalt prices have dropped by more than half since May of last year).

Cobalt is a lustrous ferromagnetic metal with a high melting point used increasingly in renewable energy technologies, such as wind turbines and solar panels, as well as the production of permanent magnets essential for the generation, transmission, and storage of power.

It also happens to be a key element in electric vehicle batteries, which have experienced a global production boom, driving its use and prices up in a steady trajectory.

Cobalt is typically mined as a byproduct and, more rarely, as a co-product of copper and other metals.

Cobalt in the Congo

Over hundreds of millions of years, geological events concentrated the majority of the planet's cobalt in a basin between the shifting tectonic plates that would eventually form Africa. Deposits were thrust upward in the collide, forming a metal-rich belt crossing what is now the modern-day Congo, where it collected primarily with molten copper in concentrations from 10-25% over the rest of the world's average of 1% or less.

The Democratic Republic of the Congo has thus far produced well over half of the world's cobalt, followed by smaller percentages from Indonesia, Australia, Canada, and others. Its essential role in lithium-ion batteries for phones and EVs has only recently brought it center stage in the mining industry.

A quarter of the cobalt mined in the DRC comes from "artisanal" mines not part of a traditional corporation, supported by little to no safety regulations. Artisanal mines often employ locals who use bare hands and simple tools, digging in informal pits en masse with no personal protective equipment. Tunnel collapses are common, which has resulted in deaths and injuries.

Poorly regulated artisanal and small-scale mining concerns are estimated to employ 200,000 people in the DRC and over a million more indirectly involved through trade and transport.

Clean cobalt needed

In October 2022, the U.S. Department of Labor added lithium-ion batteries to a list of goods produced by child labor being involved in the mining of cobalt in the DRC, drawing a shadow over cobalt production as a sustainable material. Companies have pushed to reduce or replace its use with minimal success.

The August 2022 U.S. Inflation Reduction Act (IRA) has also impacted the global cobalt supply chain, with neither of the major suppliers – the DRC nor Indonesia – are in any position to supply cobalt compliant the tax and other IRA incentives in the near future.

New battery chemistries continue to increase in efficiency, requiring less and less cobalt. Tesla and other automotive manufacturers and users are attempting to shift to cobalt-free chemistries like lithium iron phosphate and lithium manganese oxide for their EVs where possible.

"We expect further downside for cobalt prices in the near term as demand from the EV battery sector wanes while increasing global production keeps inventories healthy," market analyst Fitch Solutions said in a recent report.

Behind the surplus

Mines in the DRC have been in a yearlong ownership dispute due to poorly established property rights –an endemic issue in the DRC – during which cobalt exports halted, but mining and production continued, accumulating a large stockpile. This is in addition to industrial leaders sourcing and stockpiling their own supplies in anticipation of unpredictable prices and potential loss of green credentials as government policies push for greener supply chains.

And though the market expected this, with cobalt being produced as a byproduct to steadily in-demand metals like copper, and other countries attempting to compete with their own cobalt supplies, it hasn't been so easy to cut back on production to counter the global oversupply.

The U.S. EV market enjoyed the IRA's price cuts and tax breaks during the boom that initially sent prices for raw materials soaring over two years post-pandemic while incentivizing car purchases. However, sales have since plateaued. In April of this year, export restrictions were finally lifted in the DRC, and though sellers tried to ease the metal into the market slowly to avoid a collapse, the global marketplace was flooded, tanking prices.

Cobalt on the cusp

Cobalt is far from being the first mineral to boom and bust around a new technology or to rebound after a major crash. Its production is concentrated in a few countries that now have the world's attention and a new set of rules beyond supply and demand.

Canada also has cobalt deposits and mines but currently lacks refining capacity. Glencore has helped to finance the Electra Battery Materials Park in Ontario, home to the only cobalt refinery in North America.

Fledgling industries in Australia are also up-and-coming as alternative sources, increasingly attractive to investors.

Australia is also home to the world's second-largest cobalt reserves, with around 68 projects underway. One such project is Glencore's Murrin Murrin nickel-cobalt mine in Western Australia, the country's largest single cobalt producer.

Australia-based Cobalt Blue has developed a unique cobalt extraction and refining process for Broken Hill, a project in New South Wales where cobalt will be mined as the primary metal.

"Globally, 98% of cobalt is a byproduct of copper or nickel," said Cobalt Blue's CEO, Joe Kaderavek. "In the case of copper it's 60% of that market. And in nickel's case, it's around 38%. Cobalt is essentially an accidental metal for everyone except us."

Australia's sustainability initiatives and stricter regulations set it apart, ensuring the ethical and environmental sustainability the DRC struggles with.

"We developed a process that thermally decomposes the pyrite, so there are no acidic by-products," Kaderavek said. "It materially drops costs and makes the process environmentally friendly. It's a very elegant solution to the challenge."

Cobalt Blue's Broken Hill project anticipates around 4,000 metric tons of battery-ready cobalt production per year, with a project lifespan of at least 20 years. Alongside the unique extraction process, its use of electrified vehicles and eco-friendly processing ensure a truly green supply.

"There's a big push to source ethical cobalt," Kaderavek said. "Today, by the time cobalt is refined and goes into a battery, you've no idea what went into it. In any given electric vehicle, for example, you might have six to a dozen sources blended together and you've got no idea what's what. Unless you physically track the materials, you really don't have any idea."

Beyond batteries

Beyond the EV, cobalt has vital uses in the production of chemicals and alloys in electronics and industrial machinery. Cobalt is also used as a catalyst when refining toxic sulfur content from petroleum products. It is used in aerospace and defense applications due to its strength, resistance to corrosion, and high melting point. It has industrial applications in the production of cutting tools and high-speed steels.

The environmental impacts, geopolitical dynamics, and ethical considerations associated with cobalt mining demand solutions with technological innovations, better labor practices, improved policy frameworks, corporate social responsibility, and stakeholder engagement.

The global push toward a circular economy that minimizes waste and promotes resource recovery offers opportunities for cobalt in the industries where it is irreplaceable.

Sustainable alternative producers are a must if the industry is to grow responsibly.