Demystifying Price of Cobalt

By CMF

Cobalt is a strategic commodity currently dominated by China that the US government has been trying to strengthen due to U.S. national security interests. Used in everything from consumer electric vehicles to military weapon systems, cobalt has gone through rapid and dramatic price fluctuations, including the most recent decline by 35.7%. US policymakers have attributed the fall to the “predatory tactics” by Chinese firms to depress new investment in cobalt mining and refining. Yet they don’t accurately describe the subtle, indirect actions made by the Chinese government to control the cobalt market. 

Because cobalt is primarily a by-product of copper and nickel mining, the price elasticity of supply is very low – namely, production of cobalt is impacted more by the price of copper and nickel than it is by the price of cobalt itself. China has focused on securing strategic increases in supplies of copper and nickel as part of its industrial policy, which are base metals used in a vast array of commercial production and exports from china.  This has had a significant role in driving down the price of copper during the 2022-2023. The production of copper has resulted in an overproduction of cobalt as a by-product.

Another culprit in the fall in cobalt prices is simply the price instability endemic to cobalt. The difficulty in forecasting this pricing is clear, as the best market predictions offer roughly a straight line in their estimates of price for cobalt over the next decade -- such a trend seems highly unlikely in light of the historical booms and busts in the cobalt price.

In the short-term, a more thorough and nuanced pricing, supply, and demand forecast of cobalt would be more useful for not only the US government as it formulates its strategy around critical minerals, including cobalt, but also to the private sector miners, refiners, and investors. Once the forecasts are available, industrial and investment policies can be formulated to increase cobalt processing capacity outside of China and Chinese state-owned-enterprise control, and that should include investing in new cobalt sourcing domestically. 

China’s dominance in the cobalt market results from its oversized role in processing. Working with friends and allies to provide secure alternatives is likely the most cost-efficient approach to guaranteeing secure and resilient access to this critical material. The long-term policy response is to build mutually beneficial relationships, networks, and local connections in existing cobalt producing countries, including the DRC, Indonesia, and the Philippines – all of whom are in the Chinese sphere of influence to various degrees. Through the U.S. Agency for International Development, U.S. Development Finance Corporation, and the State Department, the U.S. government should be encouraging economic development partnerships with these countries in critical minerals value chains.