Cobalt, lithium to move into deficit by 2024, 2025: MI

London — The global lithium market was expected to move into deficit in 2025, which should result in an uptick in prices to induce supply, according to S&P Global Market Intelligence.

MI senior analyst in metals and mining research, Alice Yu, told the Turning Points for Battery Metal Markets webinar on April 27 that lithium carbonate prices were expected to average $10,500/mt CIF Asia in 2025.

The price was expected to average $9,345/mt in 2021, Yu said, below levels seen in March but up 11% on the 2020 average due to improving supply, particularly in the second half of the year.

"We expect lithium prices to rise throughout the forecast period due to positive demand outlook and higher cost of incremental production," Yu said.

According to S&P Global Platts, lithium carbonate prices averaged $10,500/mt CIF North Asia in March and have averaged $9,788/mt CIF North Asia this year.

In comparison, the lithium carbonate assessment averaged $6,710/mt CIF North Asia in 2020, with the 2021 recovery attributed to market tightness and strengthening plug-in electric vehicle (PEV) sales.

According to Platts, the spodumene concentrate price averaged $396/mt in 2020, which Yu said was below the all-in sustaining cost of most concentrate operations, which led to lithium raw material supplies declining 15% in 2020 as producer scaled back production to limit cash outgoings and instead ran down stockpiles and product inventory to meet customer demand.

Spodumene concentrate strengthened to $635/mt in March, which Yu said was above the AISC of all lithium mining operations, meaning miners should have extra cash to expand supply after previously delaying capex plans.

"We expect most of the lithium supply increase to reach the market in the second half of this year, particularly spodumene concentrate. The March lithium carbonate CIF Asia price, while it has risen, is still 53% lower than in October 2017 peak, and this price level should help to manage the supply response to avoid a repeat of the price volatility seen in the last cycle," Yu said.

Yu said global lithium demand was expected to increase over the next five years to 862,000 mt. "Lithium consumption in passenger PEV batteries will account for 78% of this growth and together with other battery apps will account for 98% of the overall lithium demand growth over the next five years."

MI forecasts global passenger PEV sales to increase 3.7-fold over the 2020-2025 period to 11 million units, dominated by China and Europe.

"You can see a larger volume growth in lithium compared to cobalt," Yu said.

"This is due to the higher share of lithium consumed in the PEV sector today and the application of lithium in non-cobalt containing lithium iron phosphate (LFP) cathodes that are more widely used in passenger cars in China and in commercial vehicles."

Cobalt deficit could hit 11,000 mt

MI also expected the cobalt market to move into deficit from 2024 whether or not Glencore restarted its Mutanda mine in Democratic Republic of Congo in 2022, though the deficit could be as high as 11,000 mt without the restart.

Yu said a Mutanda restart would account for the majority of cobalt mine supply increases over the next five years, with the timing of the restart decision critical to market balance and prices.

She said Mutanda would add supply at the higher end of the cost curve and required a cobalt metal price of $15.10/lb to cover the AISC in 2025.

However, Glencore has not given a clear timeline on the restart and Yu said the company would likely base the decision on a prolonged higher price scenario.

"We currently factor in the probability of the restart into our 2022 forecast, because otherwise a large market deficit will emerge and, aside from the Mutanda restart, there is limited visibility on other future projects, so we expect cobalt mine supply to decline in 2025," Yu said.

Yu said MI expected cobalt prices to continue falling in the short term, as the recent supply chain disruptions due to COVID-19 ceased, but added that stronger prices were still needed to induce new supply and the price was forecast to rise to $29.91/lb in 2025.

According to Platts, cobalt metal prices were assessed at $21/lb IW Europe April 27 after peaking at $25.875/lb IW Europe on March 10, the highest level since early January 2019, while cobalt hydroxide prices peaked at $24.50/lb CIF China on February 25.

Yu said cobalt prices had been largely supported by supply chain disruptions and stockpiling activities since the start of the COVID-19 pandemic, which caused prices to reach multi-month highs in March.

She said a price correction was under way from the easing of Africa's supply flow as COVID-19 infection rates fell in South Africa, the key export hub for cobalt.

"In China, January-February imports from the DRC dampened by supply chain disruptions are likely to recover from March onwards and support the price correction," Yu said.

However, the upcoming deficit is due to be led by rising demand, with MI expecting global cobalt demand to increase by over 70% over the next five years.

Some 73% of that growth was seen coming from passenger PEV batteries, with demand across all cobalt battery applications due to drive almost 90% of the overall cobalt demand growth from 2020-2025.