This in turn led to worries that the global shift to electric vehicles would be undermined by a scarcity of this crucial mineral. As prices started stabilising in April, we now can analyse the current market drivers and decide what strategy the extractive industry should adapt to fuel the energy transition sustainably.
Cobalt, a mineral with an electric blue colour known to human civilisation since ancient times, is used today to store electricity in the most efficient manner. As a reliable cathode material, it is a crucial component of lithium-ion batteries, used to power almost everything from mobile phones to laptops and electric cars.
As the world is transiting from fossil fuels towards much greener power sources, energy storage through batteries will be more and more important. This has led to a steadily increasing demand for cobalt that is projected to continue for decades to come.
Cobalt reserves, however, are estimated at 7.1m tonnes, enough to meet the demand for many decades. What led the consultancies and commentators like Wood Mackenzie to warn about a pending crunch and fears of ‘peak cobalt’ was the combination of steadily increasing demand from batteries and electric vehicles on one side, and concerns about how most cobalt is produced on the other.
The article continues below
Get your free PDF: Top 200 banks 2019
The race to transform
Complete the form and download, for free, the highlights from The Africa Report’s Exclusive Ranking of Africa’s top 200 banks from last year. Get your free PDF by completing the following form
It is estimated that 60% of the world’s cobalt comes from the Democratic Republic of Congo (DRC), where it is mined alongside copper. Supply from the DRC comes with a lot of concerns. In 2016, Amnesty International highlighted the evidence of child labour, poor working conditions and inadequate machinery at small artisanal mines in the DRC.
Pressure from non-governmental organisations (NGOs) like Amnesty has led battery producers and their customers to examine their supply chains in search of ethically produced cobalt. Combined with a fluctuating price, this led to cobalt production struggling to keep up with demand.
In 2021, however, a shift occurred, particularly as supply bottlenecks related to the pandemic got resolved with time, and prices have eased since the middle of March. More supply from across the Copper Belt has been brought into the market to meet the demand, and, crucially, manufacturers in China are beginning to invest in alternative cathode technologies. Lithium-ion-phosphate (LFP) cathodes allow batteries to be produced without cobalt and have already been adopted by two of the largest battery makers.
However, LFP batteries are unlikely to meet the power demands of long-range electric vehicles any time soon. But this shift helped to ease recent pressure on cobalt supplies. Like the predictions of peak oil, warnings of a cobalt supply crunch have been chiefly determined by market mechanisms. In the current scenario of the cobalt market, we have a steady price signal, with additional supply coming online steadily over time to overcome short-term fluctuations.
This situation appears calm, however, it masks a deeper problem. The experience of the 3TGs minerals – tin, tungsten, tantalum and gold, the so-called ‘conflict minerals’, suggests that concerns about supplies of cobalt from the DRC have not yet been fully priced in.
In recent decades, concerns about conditions in the DRC and the potential for mineral production to finance violence and terrorism has led to major regulatory reforms and controls on the supply chain of the affected minerals.
The US passed legislation in 2010 requiring smartphone makers and other electronics manufacturers to provide an independent third-party audit report of their supply chains for the 3TGs minerals. Concerns were originally raised by NGOs, who put pressure on politicians, who in turn created regulations affecting industry dynamics.
READ MORE DRC/Zambia: Is copper Africa's new oil?
Ten years on, we now have a highly developed traceability regime for 3TG metals, allowing consumers to transparently track the source from where their smartphone components were produced, whether that be in closely monitored mines in the DRC or in politically stable countries such as my native Zambia. Other jurisdictions, including the European Union, have followed the US’s lead in introducing legislation, and many electronics companies have exceeded their legal obligations on traceability.
As consumers increasingly rely on batteries, it is only a matter of time for similar pressure to be applied to the battery industry.
It may be through legislation or simply through pressure from a better-informed society. Banks, investors and business partners are already challenging suppliers on their traceability and supply-chain compliance.
Once such scrutiny begins to restrict supply, it will have a knock-on impact on costs and may lead to a new cobalt crunch in decades to come, just as our reliance on fossil-fuel-based vehicles is now broken.
Battery manufacturers can take heart, however, from the progress made over the past 10 years by the 3TG extractive industries, providing a model to follow.
Finally, in my opinion, the electric-car revolution will require more and more powerful batteries, and with plentiful reserves, the cobalt market will always adapt to meet the demand. While investors and consumers demand greater assurance and transparency, the market will rely on the expertise and experience of trusted natural-resources partners.
Understand Africa's tomorrow... today
We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.View subscription options