Electric cars prompt consultants CRU to explore cobalt sulphate index

LONDON (Reuters) - Metals consultancy CRU Group wants to create a price mechanism for cobalt sulphate, in response to increasing demand for the compound used in making rechargeable batteries that power electric cars.

FILE PHOTO: A sign is painted on a parking space for electric cars inside a car park in Hong Kong January 29, 2012. REUTERS/Tyrone Siu

Prices for cobalt sulphate are often based on those for refined metal published by Metal Bulletin. The London Metal Exchange’s cobalt contract is also for refined metal.

But demand for cobalt sulphate is expected to outpace that for the metal over coming years as governments around the world move to replace diesel- and petrol-powered engines with batteries to meet targets for cutting vehicle emissions.

“We are investigating what the most appropriate pricing mechanism will need to be moving forward to adapt to the ever changing cobalt market,” CRU told Reuters in an email.

“It is clear that there is an appetite to replace the current inefficiencies reported to us and provide an index that is trustworthy, fair and reflective of the market.”

A cobalt trader said sulphate prices earlier this year were trading at a premium of more than $5 a lb to the metal, which started the year around $14 a lb and has since more than doubled to nine-year highs above $30 a lb.

Any cobalt sulphate prices published by CRU would be based on traded prices in China, a cobalt industry source said. Chinese firms dominate the production of cobalt sulphate.

“Basing it on traded rather than quoted prices makes it difficult... The market needs some mechanism for pricing cobalt chemicals, at the moment contracts are based on metal prices,” the cobalt industry source said. “A lot depends on how liquid the market for cobalt sulphate is.”

Most cobalt sulphate is made from cobalt hydroxide, which is dissolved in acid and purified, though it can also be made from cobalt metal using a similar process.

The Democratic Republic of Congo accounts for more than 60 percent of global cobalt supplies. Most of the cobalt from the DRC comes in the form of hydroxide, a byproduct of copper production. Cobalt is also a byproduct of nickel output.

CRU consultant George Heppel expects global demand for cobalt metal at nearly 136,000 tonnes in 2021 and more than 161,000 tonnes in 2025 from roughly 102,000 tonnes this year.

Demand for batteries used in electric vehicles and mobile appliances is expected to account for 46 percent of that in 2021 from about 40 percent this year.

“Alongside this large increase in demand, CRU also expects changes to the way refined cobalt is traded and produced,” Heppel said in a research note.

“This is primarily due to a shift in cobalt demand from metallic products to chemical products.”

Cobalt is also a component of the superalloys used to make jet engines and in chemicals such as those used to stick rubber tires to the steel core.

Reporting by Pratima Desai; editing by John Stonestreet