Scenario:

As a staff member of the Security Council, I am responsible for assessing the strategic importance of critical minerals, focusing on my country’s dependence on cobalt. We have recently noted our country’s increasing reliance on cobalt to meet its energy needs while recognizing that other countries may compete for cobalt resources in sub-Saharan African countries. This situation raises concerns about our country’s long-term security outlook, especially in changing markets for critical minerals.

Background:

Cobalt is widely used in various high-tech industries and specialized applications such as electronics, automotive, aerospace, medical, and others. Moreover, rising demand for rechargeable batteries in recent years is another key factor driving the revenue growth of the market. The demand for rechargeable batteries is expected to increase over the next decade with the growing popularity of electric vehicles and the requirement for storing renewable energy sources, with the demand for electric vehicles projected to increase from approximately 340 GWh in 2022 to approximately 3,500 GWh in 2030.Cobalt is known for its excellent electrical conductivity and high-strength properties, which make it an indispensable material in the production of rechargeable battery components. 

Analysis and Discussion:

China’s demand for cobalt: 

According to the latest market report, Critical Minerals Market Review 2023, the global critical minerals market faces geopolitical risks and supply chain centralization challenges. Cobalt, as a critical mineral, plays a vital role in clean energy technologies (EV) and hence its supply stability is crucial for the country’s energy security. China has a vast and fast-developing EV market.

  • Increasing new energy vehicle sales and increasing penetration: According to the data released by the China Association of Automobile Manufacturers,11 new energy vehicles sales in 2022 reached 6.87M (see Figure 1), a market penetration rate of 25.6% (see Figure 2) of total national new vehicle sales in 2022, sharply up from 1.3% in 2020.

Source:MSCI

  • Global Market Share of new energy vihicles in 2022: In 2022, China’s new energy vehicle sales account for 64% of global new energy vehicle sales up from 40.70% in 2020. Private purchases of new energy vehicles began to appear in China in 2014. The country entered a high growth year for the new energy vehicle industry in 2015, and China also became the world’s largest new energy vehicle market in that year, and 2022 was the eighth successive year as the world’s largest new energy vehicle market. Based on Chinese government’s goals and the auto consumption trends, China Association of Automobile Manufacturers projected that China’s new energy vehicle sales is likely to grow another six to eight times by 2035.

DataSource: Evtank, made by author

The demand of cobalt in EV industry is significantly higher than in other use cases: According to IEA, the future demand of cobalt used in EV industry is expected to double by 2050, which accounts for 60% in total demand.

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The sources of cobalt imports are relatively singular: 

China is relatively lacking in cobalt resources and has a large demand for imports, with the Democratic Republic of Congo being the main source of raw cobalt material imports for China. In addition, China is an important global base for cobalt processing, with its refined cobalt output accounting for approximately 75% of the total global refined cobalt production.

  • Production of Cobalt among regions: Global cobalt production is concentrated in a few countries, with the Democratic Republic of Congo (DRC) leading significantly, producing about 130,000 tons in 2022, which accounts for around 70% of the world’s supply.Indonesia has emerged as the second-largest producer, with cobalt production soaring from 2,700 tons in 2021 to 10,000 tons in 2022. Other key cobalt-producing countries include Russia, Australia, the Philippines, Cuba, Madagascar, Papua New Guinea, Canada, and Morocco. Though these countries contribute to the global cobalt supply, their production volumes are much smaller compared to the DRC. As the electric vehicle (EV) industry grows, the demand for cobalt continues to rise. Global cobalt production reached 190,000 tons in 2022, up from 165,000 tons in 2021 and 142,000 tons in 2020. 

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  • China – DCR supply chain remain strong for cobalt: The cobalt supply chain between China and the Congo is intricate and pivotal for global markets, especially due to the cobalt demand for electric vehicle batteries. Congo is a major supplier of cobalt and China plays a dominant role in processing this cobalt. China’s firms produce over half of the world’s refined cobalt and most cobalt chemicals used in lithium-ion batteries. 

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Outlook of other region’s increasing demand of cobalt: 

The growing demand for rechargeable batteries from countries in the European region (especially the UK, Germany, and France), Europe is expected to record the fastest market growth rate for the global cobalt market within the forecaster. According to the European Environment Agency, electric vehicles including battery electric vehicles and plug-in hybrids are gradually entering the EU market, which means that the demand for cobalt in Europe will also grow.North America occupies a considerable market share in the global cobalt market due to the growing demand for cobalt in the automotive industry in the U.S. and Canada, and with its open investment policies and large consumer market it is expected that the U.S. will continue to be a producer and consumer of electric vehicles.

Alternative mineral for colbate in EV production (TBD)

Finding alternatives to cobalt in electric vehicle (EV) production is a challenging task, as potential substitutes each come with their difficulties in acquisition and application. Here’s a revised statement highlighting the challenges associated with these alternative minerals:

1. Nickel: While increasing nickel content in batteries can help reduce reliance on cobalt and enhance energy density, nickel mining faces environmental concerns and supply chain stability issues. Price volatility and geopolitical factors further complicate its viability as an alternative.

2. Manganese: Manganese-based batteries present a lower-cost option, yet current technologies have not achieved performance metrics comparable to existing cobalt-based batteries, especially in terms of energy density and cycle life.

3. Vanadium: Vanadium flow batteries show potential for large-scale energy storage but have limited applicability in EVs due to their weight and cost. The extraction and processing of vanadium also involve high costs and technical requirements.

4. Sodium: Sodium-ion batteries are attractive for their abundant resources and low cost, but they face a significant challenge with lower energy density, limiting their use in electric vehicles that require high-energy-density batteries.

5. Lithium Iron Phosphate (LFP): While lithium iron phosphate batteries offer an environmentally friendly option without cobalt and nickel, their lower energy density makes them less competitive in terms of range, possibly unsuitable for all types of electric vehicles.

In summary, although the minerals and technologies listed above provide potential alternatives to cobalt, each substitute comes with specific challenges, including but not limited to cost, performance, environmental impact, and technological maturity. Significant research and development efforts are needed to address these challenges before a complete transition away from cobalt can be achieved, ensuring truly sustainable EV production.

Recommendation:

Enhance multilateral cooperation: It is recommended that China enhance multilateral cooperation with other countries to jointly promote the diversification of the supply chain of critical minerals to reduce geopolitical risks.

Identify new sources of supply: Actively seek new sources of supply for cobalt, including working with governments in sub-Saharan Africa and Latin America, to ensure the stability and security of our critical minerals supply chain.

Develop Risk Management Strategies: Develop risk management strategies for geopolitical risks, including establishing alternate supply channels and contingency plans to ensure the security of our supply of critical minerals (cobalt).

Conclusion:

By diversifying our supply chain of critical minerals, China can minimize geopolitical risks and ensure the stability and security of our supply of cobalt. We need to pay close attention to the changes in the key minerals market and expected price trends and take corresponding strategic initiatives to ensure our energy security and national security.