SunSirs: Shifting Supply-Demand Dynamics: The Cobalt Industry Chain Is Ripe for Upgrading

Performance across the cobalt industry chain diverged in the first half of the year: resource-focused enterprises demonstrated stronger profitability, while smelters' earnings depended on raw material costs and product mix. Integrated industry leaders drove growth through precursor and cathode material businesses, whereas the scope for volume expansion in traditional cobalt operations remained limited.

Companies Accelerate Deployment of Recycling Lines

Global cobalt resources are highly concentrated in the Democratic Republic of the Congo (DRC). Early this year, the DRC set a total cobalt export quota of just 96,600 tonnes for the 2026–2027 period. Coupled with controls on concentrate exports and the implementation of policies mandating in-country deep processing, tight raw material supplies have become the industry norm.

Rigid supply-side constraints have directly driven up the baseline price of cobalt products, altering the distribution of profits across the industry chain. The traditional domestic smelting model—reliant on earning processing fees—is being disrupted. Integrated enterprises that hold overseas mining rights and align with local deep-processing policies can secure stable supplies of intermediate products, giving them the upper hand in raw material negotiations. In contrast, companies relying solely on purchased concentrates face pressure from procurement costs as well as multiple uncertainties regarding quotas, logistics, and regulatory approvals, further squeezing their room for survival.

To break free from reliance on virgin ore alone, the strategic value of power battery recycling and the comprehensive utilization of copper-cobalt tailings has rapidly come to the fore. Recycled cobalt derived from the dismantling of retired power batteries is emerging as a vital secondary source of raw material. Many companies are accelerating the deployment of recycling lines to establish a closed-loop system—spanning battery dismantling, hydrometallurgical purification, and the remanufacture of lithium-ion battery materials—thereby using recycled resources to offset virgin ore shortages and reduce dependence on overseas mines.

Tengyuan Cobalt pursues a dual-track strategy of developing both virgin ore and secondary resources. The company is continuously expanding its capacity for processing "black mass" (shredded battery material) and building a supply network that encompasses battery manufacturers, shredding firms, and scrap traders. It has constructed an internal industrial loop comprising product sales, scrap recycling, material remanufacture, and customer integration. Cobalt salts and tricobalt tetraoxide produced through recycling are supplied directly to lithium-ion battery and high-end electronics supply chains; the increasing proportion of recycled feedstock helps hedge against the pressures associated with purchasing overseas concentrates. Leveraging its advantages across the entire industry chain, Huayou Cobalt has established a "decentralized front-end collection network combined with centralized back-end smelting and regeneration" model. By simultaneously developing domestic compliant recycling facilities and overseas recycling channels, the company is exploring the standardized import of recycled "black mass" and directly utilizing recycled cobalt in the production of ternary precursors, thereby achieving a closed-loop transformation from waste materials into high-end lithium battery materials.

Data indicates that domestic recycled cobalt supply is projected to reach 45,000 to 50,000 metal tons by 2026, meeting approximately 35% of domestic refined cobalt consumption demand. Sourced from retired power batteries, black mass from spent 3C (consumer electronics) batteries, and industrial waste from the supply chain, this recycled material effectively bridges the gap in overseas primary cobalt supply.

Shifts in Demand Structure

Beyond changes on the supply side, the demand structure of the domestic cobalt industry in the first half of the year differed from previous years. Low-end, commoditized production capacity was rapidly phased out, while high-end new energy lithium battery materials and cobalt recycling—rather than traditional 3C cobalt applications—emerged as the core drivers of industry growth.

Market concerns regarding a trend toward "low-cobalt" or "cobalt-free" power batteries did not lead to a contraction in demand; instead, this trend compelled the entire industry chain to accelerate structural transformation and upgrading. The industry shifted from a traditional cyclical sector to the high-end new energy materials sector, demonstrating increasing resilience.

"Industry demand shows a clear structural divergence. Cobalt demand in the traditional 3C consumer electronics sector remains under pressure, with lithium cobalt oxide materials gradually being replaced by ternary material blends; currently, only high-end 3C products maintain stable demand for high cobalt content," noted an industry insider. Driven by increasing battery capacities and the steady expansion of total installed capacity in new energy vehicles, cobalt demand in the power battery sector has remained robust, effectively offsetting the decline in demand from traditional sectors.

The benefits of diversified and integrated strategies adopted by various listed companies have become increasingly apparent. By optimizing product portfolios and refining resource layouts, these companies have effectively mitigated the risks associated with industry cyclicality and achieved steady growth in operating performance. Zhu Keli, Founding President of the China Development Institute (CDI) New Economy Research Institute, told Securities Daily: "In the future, the singular advantage of merely securing mining rights for the short term or stockpiling resources will no longer serve as a core competitive barrier for companies in the cobalt industry chain. Instead, capabilities such as integrated operations across the entire industry chain, R&D technologies for high-end new materials, and the ability to integrate both primary and recycled resources have become the core factors determining a company's long-term growth potential and its influence within the industry." (Source: Securities Daily)

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