The United States recently set a goal that electric vehicles will account for 50% of new car sales by 2030. Since the price of cobalt and the growth rate of new energy vehicle sales are basically in the same direction, the potential demand for cobalt resources will be further released.
According to market research by Longzhong Information, the demand for cobalt for power lithium batteries in 2020 was 23,000 metal tons, accounting for 16.65% of the global cobalt supply. It is estimated that the cobalt consumed by power lithium batteries will reach 30,000 metal tons in 2021, an increase of 30.43% year-on-year, and the proportion of total supply will rise to 20.27%.
Cobalt industry chain companies are actively expanding upstream.
As the new energy market enters a period of rapid development, the market demand for raw materials has increased significantly. However, the important source of global cobalt supply is located in Africa. In the past two years, due to factors such as the repeated outbreaks of the epidemic and the complex local security situation, the production, supply and transportation of major producers have been affected, which has led to the accumulation of concerns among companies in the market.
Zhu Mingzhe, a cobalt analyst at Shanghai Steel Union's New Energy Business Unit, told the Securities Daily that with the better-than-expected growth in orders for power generation, production companies hope to secure cobalt raw material supply by binding themselves to mining resources. The rapid increase in demand for new energy in Europe and Asia has driven cobalt prices to remain on an upward trend for a long time.
Key domestic upstream cobalt resource companies include Luoyang Molybdenum, Shengton Cobalt, Huayou Cobalt, China Nonferrous Metal Mining Group, Pengxin Resources, and Wanbao Mining. Zhu Mingzhe analyzed that, in terms of production and shipments, international giants such as Glencore and Eurasian Resources account for more than 30%. Starting from the second half of 2021, Chinese companies' overseas cobalt mining projects will be launched one after another. Companies such as Luoyang Molybdenum and Huayou Cobalt will further expand their influence in the upstream cobalt industry by relying on overseas copper-cobalt and nickel-cobalt mining and smelting projects.
Zhu Shanying, an analyst at Hongyuan Futures Research Institute, told the Securities Daily that due to the uneven distribution of profits in the industry chain, the impact of commodity price increases varies for companies at different positions in the chain. Profits from cobalt resources are largely concentrated at the mining end, so upstream companies that own mines will perform better. Downstream processing industries are generally troubled by rising raw material prices. Companies with high risk management levels or high added value in their processing will be less negatively affected, but companies with low added value or weak bargaining power will see their profits eroded.
The rapid growth in demand for new energy in markets like Europe and my country has intensified market competition. However, for new energy power lithium battery companies, cost control has become one of the most critical issues. CATL has reduced supply chain costs through investments and acquisitions of upstream and midstream companies, while Huayou Cobalt has established a "metal salt + precursor + cathode" strategy to integrate the upstream and midstream industries. Both companies are highly sensitive to the price of raw materials, so rising cobalt prices are further driving leading new energy companies to invest in and enter resource projects, thereby giving them a greater cost advantage in the industry.
It will take two years for the tight cobalt supply balance to improve.
According to forecasts from third-party data platform BaiChuan YingFu, cobalt demand in the third quarter of this year will benefit from the continued surge in new energy vehicle production. Meanwhile, cobalt supply will be constrained by declining ore grades and stricter regulations on manual mining, resulting in supply growth falling short of demand growth, leading to a corresponding increase in cobalt prices. The cobalt industry is expected to maintain a tight balance in 2021-2022, but a supply shortage is anticipated in 2023.
Zhu Mingzhe pointed out that from the perspective of supply and demand companies, the continued rise in cobalt prices will drive both Chinese and foreign mining companies to continuously expand production. Furthermore, mining expansion projects will accelerate in 2022, and the current tight supply-demand balance will improve within 1-2 years. Under the existing material system, lithium iron phosphate, after its technological upgrade in 2019, already has the energy density to meet the needs of low-to-mid-range passenger vehicle travel. Moreover, it can break free from the constraints of cobalt in terms of raw materials. Cobalt-free substitution is now a market response and countermeasure to the high cobalt prices.
It is foreseeable that the cobalt content per vehicle will continue to decrease, but thanks to the significant increase in market size, the total demand for cobalt in power lithium batteries is still rising. Zhu Mingzhe believes that cobalt substitutes are also being developed. Under the choice of "cobalt-containing/low-cobalt + cobalt-free", the "ternary material + lithium iron phosphate" system has become the majority choice for mid- and downstream industrial layout, achieving mutual counterbalancing and thus suppressing large fluctuations in cobalt prices.
A recent research report by CICC Nonferrous Metals pointed out that by analyzing the fund holdings of the nonferrous metals sector in the second quarter of 2021, it can be found that lithium, copper, cobalt, nickel, and aluminum sectors remain important sectors with heavy holdings. Gold and rare earth sectors saw increased holdings, while copper holdings declined. In terms of increased holdings, cobalt, nickel, lithium, and aluminum sectors were the sectors with the most institutional increases.
Zhang Cuixia, chief investment advisor at Jufeng Investment, told the Securities Daily reporter, "Judging from the recent sustained attention paid to listed companies in the non-ferrous metals sector by the capital market, the common characteristics are the impact of rising commodity prices, global inflation, and supply-demand mismatches caused by the pandemic. Specifically, for lithium and cobalt resources, which have performed actively in the market, there is also strong downstream market demand and positive fundamentals among listed companies in the industry. However, these companies have recently seen high speculative premiums, so it is advisable not to chase the price excessively. It is recommended to buy on dips when the price retraces to the 20-day moving average or an important neckline, which will provide a safety margin and a safety margin for operations."
