The price of cobalt is expected to rise steadily with the rapid growth of demand.

After nearly two years of adjustment from 2018 to 2019, cobalt prices fell to near historical lows in 2019. Due to operating pressure, large cobalt mines upstream are forced to shrink their production capacity. As the world's largest cobalt producer, Glencore announced in 2019 that its main mine, Mutanda, would be shut down for three consecutive years from 2020 for technical reform due to the decline in cobalt prices and the conversion of oxidation ore to sulphide ore. The Mutanda mine is the largest cobalt mine in the world, with a cobalt concentrate output of 25100 tons in 2019, accounting for 18% of the global cobalt raw material supply. The closure of Mutanda mines has greatly limited Glencore's cobalt output, which fell 37 per cent year-on-year to just 21600 tonnes in the first three quarters of this year. In addition to Glencore, the TFM copper-cobalt mine, owned by Luoyang Molybdenum, the world's third-largest cobalt mine, has also begun to shrink production since 2019. In 2019, the output of cobalt from TFM mines was 16100 tons, down 14.1% from the same period last year. In the first three quarters of this year, TFM mines produced 10500 tons of cobalt, down 16.68% from the same period last year.

The output of cobalt raw materials has declined.

In addition to the production reduction of the main mines, the mining of the local people of the Democratic Republic of the Congo (DRC) will also be limited by strengthened regulation, which will further reduce the output of cobalt raw materials. During the period from 2017 to 2018, the price of cobalt rose sharply, and the local civilian mining in the Democratic Republic of the Congo (DRC) increased significantly. With the continuous decline in cobalt prices and the decline in ore grade since 2019, the mining income of the people of the Democratic Republic of the Congo (DRC) has fallen sharply. In addition, Apple, Tesla and other enterprises in the lower reaches of the industrial chain have increasingly strict management of the cobalt supply chain system, and international commodity trading giants such as Trafigura have cooperated with the Democratic Republic of the Congo (DRC) to strengthen the supervision of civil mining. It is expected that the scale of mining supply for the DRC (DRC) will be reduced in the future. The decline in the supply of large-scale mines and civilian mining has led to a decline in overall cobalt production in the Democratic Republic of the Congo (DRC). Statistics from the Central Bank of the Democratic Republic of the Congo show that the Democratic Republic of the Congo (DRC) cobalt production index fell nearly 2% year on year in the first 10 months of 2020. The decline in cobalt production in the Democratic Republic of the Congo (DRC) will correspondingly reduce the global supply of cobalt raw materials.

The decline in cobalt prices has led to a decline in the profitability of cobalt mining projects, superimposed the impact of the epidemic, slowed down the construction of new capacity projects for global cobalt raw materials, and delayed production. In 2020, the global new cobalt production capacity is mainly Chemaf's Mutoshi project, China Nonferrous Group's Deziwa project and Ansheng Mining's green gauze project, with a total capacity of 27000 tons, but these projects will produce less in 2020 and are expected to be in the stage of gradual release in 2021. Taking into account the causes of the epidemic, it is expected that the planned production capacity in 2021 may be postponed. In 2021, the effective new supply of global cobalt raw materials may be the new production capacity this year, as well as the climbing of the mature production capacity of Glencore Katanga Mine, Luoyang Molybdenum TFM Mine and the first phase of ERG's RTR project. It is estimated that the global output of cobalt raw materials will reach 149000 tons in 2021.

The Democratic Republic of the Congo (DRC) accounts for 73 per cent of global cobalt raw material production, China accounts for 67 per cent of global refined cobalt production, and Asia accounts for 77 per cent of global cobalt consumption. The world has basically formed a cobalt supply chain system with raw materials supplied by Congo (Kinshasa), smelting in China and consumption in Asia. The route from Congo (DRC) to Chinese ports through the port of Durban in South Africa is the most important transportation route for cobalt in the world. Under the influence of the epidemic, China's imports of cobalt raw materials have decreased significantly since March 2020. In the first 10 months of 2020, China's imports of cobalt ores and concentrates dropped by 44.62 percent compared with the same period last year, and imports of intermediate products from cobalt hydrometallurgy dropped by 0.52 percent year on year. Considering that Congo (Democratic Republic of the Congo), South Africa and other places may still be plagued by the epidemic in 2021, the impact of the epidemic on the global cobalt supply chain system may continue, and the supply problem of cobalt raw materials may extend to the cobalt smelting end, resulting in a structural shortage of global cobalt supply.

The demand for two-wheel drive cobalt is growing rapidly.

The development of global new energy vehicles has become a general trend. The production and sales of new energy vehicles will increase from 3.07 million in 2020 to 13.3 million in 2025, with an average annual compound growth rate of 34 per cent in the next five years. The rapid growth of new energy vehicles will also drive the growth of power lithium battery demand. The global installed capacity of power lithium battery is expected to grow from 178GWh in 2020 to 891GWH in 2025, with an average annual compound growth rate of 38% in the next five years.

Cobalt plays a key role in reducing the mixed discharge of lithium and nickel and inhibiting the phase transition in the process of charge and discharge, which can improve the stability and safety of battery materials, reduce the decrease of battery cycle performance and prevent the rapid decay of battery life. In the first half of 2020, Tesla and Honeycomb Energy proposed to use "cobalt-free" batteries, which dealt a huge blow to the future demand prospect of cobalt. In particular, Tesla as a weather vane of the industry, once it uses cobalt-free batteries, it may change the overall trend of the industry. However, Tesla's cobalt-free battery is still in the laboratory stage, and the cobalt-free battery scheme provided by Ningde era adopts new technology (positive LFP+ carbon nanotube conductive agent + CTP technology) super lithium iron phosphate battery, its energy density is close to that of high nickel ternary battery, and the overall cost is lower, so it has become Tesla's transition choice under the guidance of cost reduction. In the medium and long term, high nickel ternary battery still has advantages over lithium iron phosphate battery in energy density and unit energy cost, and lithium iron phosphate battery has the problem of energy attenuation at low temperature. Although the downstream new energy automobile companies represented by Tesla advocate "cobalt-free", they purchase a large number of cobalt raw materials in action, indicating that cobalt can not be replaced in the field of power batteries in the short term.

The arrival of the 5G era has accelerated the replacement of 5G mobile phones to 4G mobile phones. Although smartphone shipments are expected to fall 6.2 per cent to 1.286 billion units in 2020 compared with the same period last year due to the epidemic, the penetration rate of domestic 5G phones has reached 67 per cent. Strategy Analytics predicts that global sales of 5G phones will exceed 1 billion units in 2025, and global smartphone shipments are expected to continue to grow in the coming years, driven by 5G phones. In addition, 5G mobile phones will not only increase overall smartphone shipments, but also have a significantly higher battery capacity than 4G mobile phones. The China Chemical and physical Power Association estimates that in 2019, the average battery capacity of the world's top 10 best-selling 4G mobile phones was 3,279mAh, while the average battery capacity of mainstream 5G mobile phones was 4286mAh, an increase of 30.71% compared with mainstream 4G mobile phones. The replacement trend of 5G mobile phones will increase the demand for cobalt in mobile phone batteries from two dimensions: total shipments and power consumption per unit. In addition, under the influence of the epidemic, people spend more time working and entertaining at home, and the demand for tablets and laptops increases, which will also boost the demand for 3C batteries for cobalt along with wearable consumer electronics products such as mobile phones and smartwatches. 3C batteries basically use lithium cobalt. The author expects that the demand for cobalt in 3C and other non-power batteries will increase from 52600 tons in 2019 to 71800 tons in 2025, with an average annual compound growth rate of 5.32%.

In addition to batteries, cobalt downstream applications are also concentrated in traditional industrial fields such as superalloys, cemented carbide, ceramics and catalysts. These downstream demand areas are closely related to macroeconomic development. With the further growth of cobalt demand for power batteries and 3C batteries in the future, the overall demand for cobalt for cobalt in traditional industrial fields will continue to decline. The author predicts that global cobalt demand will grow from 126000 tons in 2019 to 232400 tons in 2025, with an average annual compound growth rate of 10.74 per cent.

Structural short-term may accelerate the rise of cobalt prices

Although the output of cobalt raw materials will increase next year, driven by the high-speed demand for cobalt from new energy vehicles and 5G replacement, the structure of global cobalt supply and demand will be improved marginally in 2021, which is conducive to the upward movement of the price center of cobalt. After the domestic epidemic situation was effectively controlled and the economy recovered, the domestic production of new energy vehicles increased significantly in the second half of this year, resulting in an increase in orders for cobalt salt from downstream cathode material manufacturers, thus causing cobalt salt manufacturers to increase their operating rate and consume inventory. Under the influence of the epidemic, domestic imports of Democratic Republic of the Congo (DRC) cobalt raw materials decreased significantly. Considering that the time point of vaccine coverage in Congo (DRC) in 2021 may be later than that in Europe, the United States, Asia and other cobalt consumption places, the global cobalt supply chain system will still be disrupted by the epidemic next year. The shortage of cobalt raw materials in domestic cobalt salt plants and the consumption of cobalt salts in the lower reaches may lead to a periodic supply shortage and stimulate the rise of cobalt prices. The rise of cobalt price superimposes the expectation of high-speed growth of downstream demand for new energy vehicles, which may further trigger the inventory behavior of the industrial chain and accelerate the rise of cobalt price. it is expected that the domestic electrolytic cobalt price will rise to 300000 ~ 350000 yuan / ton next year.