The US is behind in securing cobalt supplies that are compliant with the Inflation Reduction Act and lags in unlocking domestic processing potential, industry participants told S&P Global Commodity Insights.

The Inflation Reduction Act (IRA) set guidelines on raw materials that can be used in US-built electric vehicles to enable buyers of the cars to receive a tax credit. But the US is lagging in finding cobalt that could meet those requirements. Only 8% of refined cobalt supply will be IRA-compliant in 2025, excluding European material, said Robert Searle, a battery raw materials analyst at Fastmarkets.

The US has allocated billions through the IRA and Bipartisan Infrastructure Act with the aim of creating a critical minerals supply chain outside of China. Despite the incentives, cobalt is still expected to have most of its supply chain housed in Indonesia, Democratic Republic of Congo and China, industry participants said.

Industry participants expect government funds to reach the cobalt industry eventually, but limited cobalt reserves mean the US will need additional policies, support from free trade agreement (FTA) partners and a presence in the refinement process.

"Our entire supply chain is being moved from China to North America. It just takes time," Navaid Alam, president and CEO of EVelution Energy LLC, said in an interview. "We were early and we're catching all this momentum. [The US government] is looking at us and looking to sign agreements with companies like ours — start-ups that haven't started construction. They know they need to help us because private capital in the US is still slow."

EVelution Energy is developing a solar-powered cobalt processing facility in Arizona.

Trickling funds

The Biden administration has begun distributing funds for clean energy technology, but a focus on downstream battery components and assembly has left the raw materials sector on the waiting list, industry participants said.

"The US was miles behind in August 2022, but since the IRA was announced, now they're neck and neck with the EU. That really just demonstrates how important the IRA has been for downstream development," Harry Fisher, a senior consultant at Benchmark Minerals Intelligence, said on a panel at the Cobalt Institute's Cobalt Congress conference held May 13-14 in New York.

"It hasn't quite moved upstream and midstream but that will happen with time," Harry Fisher added.

The sentiment was echoed on a separate panel by Bill Fisher, co-founder and chief technology officer of battery recycling company Exsolve Inc.

"[Looking at the] boots on the ground, everybody's saying there's no money there yet," Bill Fisher said.

The US has no active cobalt mines or processing facilities, data from S&P Global Market Intelligence shows. But there are more than 30 projects in the early stages of development that aim to produce cobalt either as a primary metal or a byproduct.

Prospective cobalt producers are anxious to receive government attention.

"People want to invest in the segment but it's hard to get them out with the volatility. If the government can [provide a] signal by giving a grant to a cobalt project in America, that would move the needle," Michael Hollomon, commercial director at United States Strategic Metals LLC, said during a panel at the New York conference.

The recent downcycle in cobalt prices has only made matters worst, executives said. Cobalt prices have fallen back to pre-2021 levels with the London Metal Exchange cash price hitting $26,908 per metric ton of cobalt on May 30, down by 67.1% compared to the 2022 high of $81,900/t on March 10–11 of that year, Market Intelligence data shows.

Refining jumpstart

The US will also need to work with trade partners to gain access to sufficient levels of raw materials, industry participants said.

The US only has about 590,000 metric tons of cobalt in reserves and resources, compared to the DRC with 11.5 million metric tons and Indonesia with 2.1 MMt, according to Market Intelligence data. The DRC and Indonesia produced 69% and 10%, respectively, of the global mined cobalt supply in 2023.

The US must "go beyond just partnerships with FTA countries" to work with other "resource-rich allied nations," DaQuawn Bruce, vice president of strategic initiatives at Westwin Elements Inc., told Commodity Insights. Westwin Elements is developing a nickel, cobalt and manganese refinery in Oklahoma.

Metals imported for EVs that come from countries with FTAs with the US can qualify for the IRA tax credit.

In June 2022, the Mineral Security Partnership was rolled out as a US-led initiative with 13 other countries and the EU with the aim of creating the communication needed to "friend-shore" critical minerals.

Aside from working with partners, the development of a domestic refinement industry represents the US' best chance to decouple from China, industry participants said. China will control 74% of the world's cobalt refining capacity in 2030, according to the International Energy Agency.

"The US government has finally realized that offshoring all its basic processing in the '80s, '90s and 2000s is now coming back to bite them," said EVelution's Alam.

Additional government help wanted

Industry participants are calling for more policy support.

Julie Lucas, executive director of regional industry group Mining Minnesota, told Commodity Insights that Minnesota holds 88% of the cobalt resources in the US. But the government needs to implement permitting and litigation reforms in order to get a domestic cobalt mining industry off the ground, Lucas said.

Westwin's Bruce called for government procurement contracts, extended incentives and price floors on critical minerals. And EVelution Energy's Alam suggested loan guarantees and loan payouts in installments, subject to projects staying on track.

"Instead of trying to do home runs, they should just hit singles," Alam said.

Reitumetse Chalale, senior analyst for cobalt and graphite at the Project Blue consulting firm, said in an email that the two MOUs signed between the US and the DRC and Zambia will help by "easing logistical bottlenecks and reducing China's involvement in African copper and cobalt supply chains."

Chalale expects internal demand to outweigh available supply from US companies and FTA partners.

"The Inflation Reduction Act, in large part is actually quite a blunt instrument," Duncan Wood, vice president for strategy and new initiatives at the Wilson Center, said on a panel at the Cobalt Congress conference. "We're beginning to talk about not just throwing money at the situation, [but] the whole range of policy options that we have in front of us for each particular critical mineral."