At the same time, benchmarking this recovery against the 2022 cycle peak ignores the profound shifts in the underlying market architecture. Market fundamentals for both cobalt and lithium have changed. The total addressable market is significantly larger, demand drivers are more diverse and market participants have adopted financial instruments to manage price volatility.

To understand the current environment, it is necessary to examine the expansion of the end-user market since the last cycle top. In late 2022, demand analysis was predominantly tethered to passenger electric vehicle (EV) growth rates. While the percentage growth of EV sales has normalized from its initial post-pandemic surge, the absolute volume represents a significant baseline of demand. Global passenger EV sales exceeded 20 million units in 2025. This establishes a high floor for baseline material consumption that simply did not exist to that extent during the last cycle.

The market dynamic between the 2022 peak and the 2026 recovery has also been impacted by the maturation of Battery Energy Storage Systems (BESS). As utility companies and regional grids integrate higher percentages of intermittent renewable energy, stationary energy storage has transitioned from a supplementary technology to critical grid infrastructure. BESS growth is closely associated with lithium carbonate demand, as the preferred technology for BESS is Lithium-Iron-Phosphate (LFP) batteries, which do not contain cobalt.

In 2022, cobalt demand was 187,000 MT, with battery applications accounting for just over 70% of total demand. In 2026, total demand reached 276,000 MT (+48%) and battery applications were 75% of the total^[1]. The demand growth for lithium was even more pronounced, with 2025 total demand estimated at around 1.4m MT (in lithium carbonate equivalent, the industry’s preferred measure), versus 0.8m MT in 2022 (+75%)^[2]. At 90%, battery applications represent the near totality of lithium demand.

The upward pressure on prices from their recent lows is a function of classic commodity supply cycles. Companies exited the market when prices for lithium and cobalt fell below their marginal cost of production and are now trying to reactivate idle production, which takes time. 

In the lithium sector, the price environment forced higher-cost operations, notably Chinese lepidolite producers, to curtail production. This was followed by delayed capacity expansions and deferred capital expenditures among major producers in Australia and South America. Because the mining industry operates on extended lead times – it often takes over a decade to bring a newly discovered resource to commercial production – the reduction in capital deployment during the 2024–2025 trough has limited the supply response capacity available in 2026 and beyond. The market clearing price is now incentivizing new supply to come online.

Cobalt’s price recovery is driven by supply-side tightening. Following a severe oversupply after the 2022 peak – caused by expanding output from the Democratic Republic of Congo (DRC) and rising Indonesian byproduct volumes – the global balance has now decisively shifted. To manage export flows, the DRC government capped outbound shipments at roughly 96,600 metric tons (MT) annually for 2026–2027. This cap represents a reduction of nearly half from the country's peak 2024 production (keeping in mind that the DRC accounts for 70% or more of world production). 

This regulatory restriction has transitioned the market from a structural surplus into an intermediate feedstock deficit. While expanding Indonesian output provides a partial offset, it is insufficient to bridge the supply gap. Combined with steady demand from the aerospace sector and premium EV batteries utilizing nickel-cobalt-manganese (NCM) chemistries, this supply contraction has significantly tightened the physical spot market.

While shifts in supply and demand will continue to dictate spot price formation, the industry's approach to risk management has also been fundamentally changed by growing derivatives markets on cobalt and lithium.

During the previous cyclical peak, the battery metals supply chain operated with minimal financial hedging, leaving automotive OEMs and mining firms heavily exposed to volatile spot prices. The financial impact of this exposure became clear during the 2023–2025 price crash; as prices fell dramatically, upstream producers faced severe losses that forced production cuts or stockpiling, while downstream automakers had to deal with highly volatile, unpredictable input costs for their battery manufacturing pipelines. This volatility underscored the potential risks of relying strictly on the ability to renegotiate physical contracts when prices swing wildly. 

Starting in 2020, CME Group rapidly established a Battery Metals product suite that now allows trading of Cobalt futures and options, Cobalt Hydroxide futures, Lithium Hydroxide futures and options, Lithium Carbonate futures and, last but not least, Spodumene futures.The industry has progressively adopted these financial instruments for hedging purposes. 

When cobalt metal prices reached their cyclical highs in May 2022, liquidity and open interest in our Cobalt futures was 35 contracts ADV (average daily volume), and open interest stood at 2,300 contracts^[3].  In April 2026, liquidity in the contract amounted to 159 contracts ADV, and open interest stood at above 14,000. In addition, liquidity on the Cobalt options contract is on the rise (2026 YTD ADV of 50 contracts), which provides yet another flexible price risk management tool to the industry.

CFTC Commitments of Trader data (“CoT”) for Cobalt futures also documents how the commercial sector makes use of the futures markets. It shows that commercial participants – called Producer/Merchant/Processor/User (PMPU) in the CoT report – mostly use the futures contracts to manage their physical long exposure (meaning they go short in the futures markets). But we also saw increased participation by commercial participants that want protection from risking prices by going long in the futures markets. In the period leading up to the price bottoming in the first quarter of 2025, more and more commercials went long in the futures markets, effectively locking in current, depressed prices for their purchases. After the DRC intervened and prices rebounded, we saw an increase in PMPU shorts, meaning producers and merchants locked in profits at the newly recovered price levels.

When lithium prices reached their cyclical top in December 2022, the Lithium futures market was only nascent and liquidity almost non-existent (ADV of 15 contracts). As of 2026 YTD, Lithium Hydroxide futures ADV stands at 449 contracts, and open interest is at over 15,000 contracts. Beyond Lithium hydroxide, the market is also expanding its use of Lithium Carbonate futures (2026 YTD ADV of 92 contracts).

Looking at CFTC CoT data for Lithium Hydroxide futures^[4] reveals distinct positioning trends compared to Cobalt futures within the commercial categories. As lithium prices softened ahead of the market bottom in the third quarter of 2025, the PMPU segment steadily accumulated short positions to hedge against further downside risk. Since the price bottom, however, this segment has moderated its short hedging activity. 

This pullback indicates that a larger portion of current production has been left unhedged, allowing producers and merchants to participate in the price recovery. This shift underscores how market participants use listed derivatives, such as our Lithium Hydroxide futures, to dynamically manage commercial exposure. The data reflects a transition from downside risk mitigation during a bearish cycle to a more selective hedging posture during a market turn. Ultimately, the positioning trends in Cobalt and Lithium futures demonstrate the utility of efficient risk-transfer mechanisms, allowing participants to scale their long or short hedges in response to changing physical supply and demand balances.

The cobalt and lithium markets of 2026 bear little resemblance to those of 2022-2023. Prices are recovering from their cyclical lows due to supply-side corrections and the rapid scaling of EV manufacturing and, in the case of lithium carbonate, energy storage applications. Crucially, the expanding use of futures markets for active risk management reflects the ongoing transition of lithium and cobalt into standardized commodities. Volatility remains an inherent characteristic of these growing commodity markets, but market participants now possess more financial instruments to manage that risk effectively, supporting a more stable foundation for market growth.

• ^{[1] Source: Cobalt Institute Cobalt Market Reports}
• ^{[2] Source: https://www.industry.gov.au/publications/resources-and-energy-quarterly}
• ^{[3] One contract is equivalent to 1 metric ton}
• ^{[4] Due to its lower liquidity, Lithium Carbonate futures are not yet covered in the CFTC CoT report}

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