China has crushed the market for “critical minerals”.

The reality is far more complex. It is clear that the energy transition will bring much higher demand for certain raw materials as the world will need millions of new high-performance batteries. While most metals are struggling with 2% to 3% annual demand growth, cobalt and lithium have seen consumption growth of 10% to 20% per year. On the demand side, critical minerals are the envy of the extractive industry. However, the offering has also expanded rapidly.

Cobalt is paradigmatic. For many years, Glencore Plc., the London-listed commodities giant, dominated the market. But Chinese companies soon followed him to the Democratic Republic of Congo, home to the world’s largest reserves. A Chinese company there, now known as CMOC Group Ltd. is known to have increased production in such a short period of time beyond what many in the industry would have thought possible.

Annual production in the global cobalt market has reached about 230,000 tons as CMOC expanded its production to more than 100,000 tons this year from about 15,000 tons five years ago. CMOC has been rapidly expanding its massive Tenke Fungurume and Kisanfu mines in southern Democratic Republic of Congo. The Chinese mining giant, whose shareholders include battery manufacturer Contemporary Amperex Technology Co., has become the world’s leading cobalt mining company and has overtaken Glencore.

Not surprisingly, the production shock has overwhelmed demand and led to stockpiling everywhere. Even the optimists assume that it would take 18 to 24 months to break even. More cautious observers say five years or even longer.

Why should it take so long to bring the market back into balance? Shouldn’t production respond quickly to low prices, as in a typical boom-bust commodity cycle? The problem is that cobalt is not a typical raw material. Virtually no one mines exclusively for cobalt; Instead, about 98% of global production is a byproduct of copper and nickel mining. So the price that really matters is not what cobalt achieves, but what copper and nickel achieve. And both fetch such high prices that miners have every incentive to keep digging. Therefore, low prices are not a cure for cobalt overproduction.

The result was a collapse in cobalt prices. From the recent peak of more than $80 per kilogram in mid-2022, it has fallen to around
The price was most recently at $25, close to its lowest level in two decades. Adjusted for inflation, cobalt is cheaper in real terms than it has been in at least half a century.

The cobalt market’s best chance of regaining balance is to wait patiently for demand to keep pace with the recent surge in additional supply. It doesn’t help that electric vehicle sales have disappointed everywhere but China so far this year, leading to a decline in demand for batteries.

But low commodity prices will certainly help boost demand. The episodic price spikes over the past two decades have led to enormous engineering efforts to reduce cobalt consumption. The money invested in research and development created new battery chemistries such as NMC 811, which reduced the cobalt content in the battery’s cathode to just 10%, compared to 20% in previous batteries called NMC 622 or even 30% in NMC 523.

At current cobalt prices, research and development dollars are going elsewhere and the industry is not trying to reduce raw material consumption. In fact, the opposite is true: Executives told me they are seeing signs of higher cobalt content returning for some battery applications.

The lithium market followed a similar pattern, with Chinese companies increasing supply so quickly that they overwhelmed the market. Not only is there more metal being unearthed, but Chinese companies are also very good at recycling waste batteries, creating an additional layer of supply. The result was the same as with cobalt: the market collapsed. Benchmark lithium prices have fallen to about $11,000 a tonne, below the recent peak of nearly $70,000 a tonne in early 2023.

As with many other raw materials, China has inflated a bubble in critical minerals. Domestic demand for batteries has been strong – and its dominance of the supply chain has been such that it has led many outside China to stockpile cobalt and lithium, spurred by ominous warnings from American and European policymakers. For a short time, demand exceeded supply.

But what China has done, China has also undone. Every effort was made to increase supply and the result was a huge crash. But don’t let the current low prices fool you; While they may not recover anytime soon, China’s absolute dominance in critical minerals poses a clear and ongoing threat to future production of the batteries needed to wean the world off fossil fuels.