Outside North America, information technology, automobile and new energy specialist BYD expects to add a further 20 GWh of production capacity. Boston Power and LG Chem are also expanding production capacity.

“We also expect a number of other producers to pursue capacity expansions over the coming years. Whether these will be on a gigascale is yet to be seen, but together they will also offer significant new volumes to the market over the coming decade,” Miller advises.

New York-based House Mountain Partners founder and co-author of The Disruptive Discoveries Journal Chris Berry tells Mining Weekly that there currently exists at least a dozen battery manufacturers with numerous others rushing to join and capture growing market share.

According to him, the lithium-ion battery business is essentially “owned” by Asia, with major producers including LG Chem, Samsung SDI, BYD and Panasonic. These companies are established players in the sector and are ramping up capacity by varying degrees.

Last year, LG Chem announced its intention to establish a joint venture with two State-run companies in Nanjing, China, with the goal of producing 100 000 electric vehicle (EV) battery packs by the end of 2015. Boston Power and Alevo are two other emerging companies in the lithium-ion battery space.

“Though, individually, these companies have sales goals smaller than that of Tesla, when viewed collectively, it is clear that security of supply of raw materials – cobalt, lithium, nickel and graphite – will be a major issue going forward,” Berry adds.

He says there are two likely scenarios that can play out over the coming years.

“I think there is a more significant issue and that is the general downward trend in metals prices. Cobalt is almost exclusively a by-product of copper and nickel mining. With copper prices down 17% year-to-date (YTD) and nickel prices down 29% YTD, this raises the possibility of curtailing production or closing uneconomic mines.

“In any of these instances where cobalt is a by-product, any decrease in copper or nickel production could mean a decrease in cobalt output. It appears for now that the cobalt price will likely trade sideways as the news of capital expenditure and production curtailments in copper and nickel has not yet begun in earnest,” Berry explains.

Conversely, the stronger US dollar and lower energy prices can be a boon to miners and refiners outside the US, making it cheaper to produce the finished product as their home currencies weaken. Coupled with lower energy inputs, this can exacerbate a supply glut and keep a lid on prices.

“I think the most likely scenario is a mix of the two with a bias towards the latter. There will be production cuts, but not likely anything big enough to outweigh increased production due to lower energy costs and foreign exchange tailwinds,” Berry notes.

In terms of existing suppliers, the only area that can potentially increase production in the short term is in the politically unstable Democratic Republic of Congo (DRC); however, with much of this dependent on nickel and copper mining, the industry is at risk of having insufficient supplies for the emerging sector, as cobalt is likely to grow at a faster rate than industrial markets. The DRC produces about 61% of global cobalt output and China accounts for about 43% of refinery production.

Continued slack in global cumulative demand pushing metals prices down further is another primary risk. Low prices discourage investment in additional capacity, while EV sales falling short of expectations also represent a challenge to cobalt market upside.

The world’s number-three ranked cobalt producer, as reported by the Cobalt Development Institute in April, diversified miner Sherritt International, expects growth for the rare metal to continue at between 4% and 6% a year, as cobalt continues to play a critical role in lithium-ion rechargeable battery applications for EVs, hybrid electric vehicles (HEVs), cellphones and hand-held electronic devices, as well as off-peak renewable-power storage initiatives.

“Cobalt in rechargeable battery chemicals currently represents about 45% of total demand for cobalt and this is expected to continue to rise over the coming years,” Sherritt president and CEO David Pathe tells Mining Weekly.

He points out that the biggest risk for the cobalt market in the short to medium term is low energy prices. “Low fossil fuel prices would affect the adoption of EV and HEVs, delaying the growth of this key market for cobalt,” he highlights.

Just how sustainable the expected growth will be depended on a multitude of variables. Berry explains that investors have in recent years been disappointed many times over by the narrative of “explosive demand”.

“The keys are watching the sales trends in EVs and in the stationary storage markets. They are growing fast, but from a small base. Additionally, monitoring the trajectory in price per kWh for lithium-ion batteries and the price per watt for solar power will be crucial.

“As an example, lithium-ion battery costs have fallen by 14% a year in recent years. This isn’t a Moore’s Law phenomenon, but it is respectable. As the costs of these technologies continue to fall, this should spur adoption and provide a floor for raw materials prices,” Berry says.

He adds that investors should be mindful of recycling, as this will play a role in supplying the markets that can somewhat mitigate any pending supply crunch.

“Today, the sustainability of this growth remains the big question that the industry needs to address. “There are a limited number of junior companies in the space and tighter conditions in financing markets are limiting their progress,” Benchmark’s Miller says.

However, the critical role of cobalt remains undiminished. While there are other lithium-ion battery chemistries being developed that do not use cobalt, Benchmark believes the market is unlikely to see a widespread shift away from its use in the next decade.

“Major battery producers have spent years refining these technologies, so to move away from cobalt-based chemistries would not only undermine the millions of dollars they’ve spent on research and development, but also jeopardise the progress they’ve made in terms of performance and cost,” Miller comments.

Historically, cobalt price fluctuations are frequent, never more so than in 2008, when price volatility was at its peak. Also more recently, cobalt has started trading on the London Metals Exchange, allowing speculators to enter the market and affect the price.

“In recent years, however, the market has stabilised at low levels and price fluctuations have slowed. At Benchmark, we expect this to change over the next year or so as the market moves into deficit. Rising prices from 2016 onwards will likely see traders increase their exposure to cobalt, which will add to this volatility,” Miller says.

“As a producer of a significant amount of cobalt (about 8 000 t/y), we are pleased that the cobalt price has remained very stable over the past few years, supporting the use and development of cobalt in these important end-uses,” Sherritt’s Pathe noted.

At the moment, any new project looking to come onto the market will be forced to target growing battery demand. Traditional industries such as cobalt metal do not currently pose growth potential to entice investors to finance projects.

One such shovel-ready project affected by mellow investor interest is project developer Fortune Minerals’ Nico gold/cobalt/bismuth/copper mine and concentrator, in Canada’s Northwest Territories. All permits are in place to construct and operate the project, pending the finalising of financing. The ore will be processed in two stages at the Nico site and the company’s Saskatchewan metals processing plant, near Saskatoon.

President and CEO Robin Goad affirms to Mining Weekly that the financing market is effectively closed.

“Historically, we were looking at funding the project through a partnership with large Asian companies, but now that market is also closed. We are now focused on private equity, conventional debt and offtake customers to finance the project and we are ramping up our efforts to secure financing, which would be the next catalyst,” he says.

He adds that despite the global economy being in a bit of a unique situation right now, where all commodity prices are low, Goad believes that investors are starting to recognise the importance of minor metals, such as cobalt, where they were previously focused on base and precious metals. Being a polymetal deposit, Nico also stands to benefit from increased commodity prices as the global economy picks up momentum.

According to Miller, of the few development-stage companies around today, Formation Metals, Fortune Minerals and Global Cobalt are probably the best established.

Berry notes that he is currently more focused on the major producers, including Freeport-McMoRan, Glencore, Umicore and Sherritt. “It’s true that cobalt represents a miniscule part of these companies operating results, but they are responsible for the lion’s share of current supply,” he adds.

As such, with a supply deficit and growing demand on the cards, analysts can only speculate as to how far upstream end-users will be willing to go to secure raw materials.

“It’s possible that we could see end-users making investments as far upstream as the mines themselves over the coming years, particularly if you consider the potential supply-side issues that could emerge over the coming years. “Supply chain security will become increasingly important as supplies tighten and, if you consider the issues battery suppliers are going to have in sourcing not just cobalt but materials like graphite and lithium too, then it would make sense for them to lock in upstream supplies in some form,” Miller says.