Cobalt and copper demand to rally, predicts Eurasian Resources Group

Eurasian Resources Group, a leading diversified natural resources producer, forecasts that the demand for cobalt and copper will outstrip supply in 2023.

Cobalt mine production is facing significant risks globally in 2023 — some of which have been realized — despite its strong supply growth in 2022. The deficit is estimated to surpass 20 percent year-on-year, according to CRU, a market analysis and consultancy service provider on the global metals, mining and fertilizer industries, said Benedikt Sobotka, CEO of ERG.

"This could mean flat, or even negative, mine supply growth," he added.

Surge in demand

Meanwhile, cobalt demand is on the rise, he noted, citing new energy vehicles, one of the major fields where cobalt is consumed, as an example. NEV sales are estimated to have surpassed 10 million units in 2022, up more than 50 percent year-on-year.

Rho Motion, a market research firm focused on the development of electric-vehicle, battery, charging and infrastructure markets, predicts that global EV sales will surge to 14.4 million units in 2023. That means that 17 percent of all car sales will be electric — up from 13 percent in 2022 and more than double their 8 percent penetration in 2021.

"This immense sales growth in 2023 will be underpinned by stronger growth in Western Europe of 21 percent year-on-year, as supply chain bottlenecks recede and new manufacturing capacity comes online," Sobotka said.

CRU estimates that cobalt demand for EV batteries will reach nearly 100,000 metric tons in 2023, which is equivalent to the total EV demand in 2021-22 combined.

"We are also observing a huge uptake of lithium-ion batteries in the e-mobility space, with total battery capacity from this sector expected to reach 37.3 gigawatt-hours in 2023, up 17 percent year-on-year, according to Rho Motion," Sobotka said.

According to CRU, lithium-ion batteries account for almost 45 percent of total current cobalt demand, which is expected to increase to around 60 percent in five years. Just 10 years ago, the proportion stood at only 10 percent of total demand.

"This trend will culminate in a surge in absolute cobalt demand," Sobotka said. "Total demand for cobalt in the next five years will be higher than all cobalt consumed in the first two decades of this century."

"Meanwhile, we expect a full recovery of aerospace sector demand to pre-pandemic levels," he said, citing CRU forecasts of a 12 percent year-on-year increase in cobalt metal demand from the industry in 2023.

"In view of this continuing surge in cobalt demand from the EV sector; a recovery of demand from portable electronics and aerospace sectors; prospective buying by China's State Reserve Bureau and major supply headwinds, the cobalt market looks set to transition from a moderate surplus in the second half of 2022 to a deficit market in 2023," he noted.

"Secondary supply, such as recycling, is one avenue to bolster future supplies of cobalt," he said. "However, its supply chain faces severe challenges in the foreseeable future from underdeveloped collection networks, poor regulatory frameworks, safe handling constraints, evolving battery chemistries and design, price volatility and the long life spans of EV batteries.

"The overarching conclusion is that secondary sources of supply alone will be unable to meet the growing demand for energy transition minerals and significant investment in primary production capacity will therefore be essential," he said.

Rapid shift

"Strong copper demand is expected in China as coronavirus restrictions are lifted and vast stimulus support copper-intensive real estate and consumption sectors," Sobotka said.

"Copper consumption picked up markedly in the second half of 2022 and we expect it to continue being supported in 2023, especially in China.

"Visible copper inventories in China stand critically low at just 101,000 tons, down by 51.7 percent year-on-year and less than a fifth of the average level of 541,000 tons at this time of year in 2015-19."

In the rest of the world, copper demand will continue to outperform the broader macroeconomic slowdown, bolstered primarily by rapid demand growth from the green energy sector in Europe and the United States.

On the supply side, the high rate of mine operations suspension that gripped the market in 2022 looked set to spill over into 2023, especially in South and Central America, with numerous pronounced guidance reductions announced for the coming years by major mining companies, he said.

Moreover, two of the key mine projects set to bolster supply growth in 2023 have slipped significantly behind schedule, he added.

As a result, the market is increasingly shifting away from an outlook of surplus in 2023, to a deficit. This shift is reflected in the annual benchmark premiums for the 2023 copper cathode supply, which have risen markedly, indicating a tightening of cathode supply, he said.

"Against this tight fundamental backdrop, there is an increasing likelihood of an early Fed pivot, especially as US inflation readings have come in markedly lower than expected for two consecutive months. This should ultimately turbocharge copper prices back toward $10,000 per ton in 2023."

"While the global aluminum market is expected to be broadly balanced in 2023, prices should remain elevated against a backdrop of higher smelting costs, raised interest rates and higher demand in China amid the changes in the country's coronavirus policy," Sobotka said.

In addition, the aluminum industry will need to significantly increase investment in the coming years to meet decarbonization targets and partially replace Russian metal exports, he said.

"Meanwhile, the global alumina market saw less drama in 2022 compared to aluminum, with prices expected to climb higher in 2023, in response to refinery curtailments in the high-cost environment."

Iron ore shipments

Despite extensive downward pressure on iron ore in 2022 and some remarkable fluctuations, especially in the first half of that year, iron ore prices ended the year almost where they started. A marginal decline of $10 per ton was recorded in the seaborne market from January to December 2022, Sobotka said.

"China's steel and iron ore demand has been increasing continuously over the past two to three months and has reached moderately high levels, which, however, is yet to meet 2022's supply additions," he noted.

The country's iron ore inventories at mills and ports combined have now dropped to 60-63 days of consumption, which is well below the normal average of 65-70 days. It is considerably below 2021's high of 80 days, according to the CEO.

"Both of the low inventory levels and the gradually improving demand in China suggest strong support to spot prices in the coming months," he said.

Sobotka particularly noted the increasingly strong demand for high-grade iron ore materials, especially beyond 2023-24.

"The urgency of addressing lower carbon dioxide emissions is well understood by investors and key market participants, including steelmakers and iron ore miners, who have made huge efforts to identify sustainable decarbonization strategies."