Categories: Energy / General Market Commentary
Topics: General Energy / General Market Commentary

Cobaltmania

One does not usually expect a sober conference of traders and other players in the battery metals space to go all apocalyptic but that is what happened when the topic of Cobalt arose at the recent Argus Metals Week in London.

As is well known the price for Cobalt has been on a tear, dragging along prices of Cobalt “stories” in its wake. While much of the move has been attributed to the Lithium ion battery dynamic we would note that long term underinvestment in the metal (particularly in development of primary mines) and the closure of Cu-Co mine capacity by Glencore during its late-2015 near-death experience also played a part.

Lift-Off

The pace of change in the battery space has moved up a gear with the Cobalt crisis moving into centre stage and focusing minds on supply issues in the battery space, particularly as regards the “blue” metal. The Cobalt producers have annual output of around 100,000 tonnes. The price of Cobalt has soared (though still not back to pre-2008 levels) and the chatter in markets has been of an imminent supply crunch in absolute terms that might precipitate rationing by price and possible switching to alternative technologies.

While opinions differed on just how steep the rise in prices might ultimately be we perceived an even bigger threat in that there might be an absolute shortage of Cobalt, transitory or longer, in which case end-users (and by that we mean beyond just the battery space) may not be able to secure Cobalt for “love nor money” as they say in the classics. One might compare it almost to like a situation of war-time shortage when “nylons” or suchlike might have totally disappeared. Clearly in a rationing scenario there will not be governments (except maybe the DRC) in a position to ration supply and thus the advantaged parties will be those for whom the cobalt is only a tiny part of a high cost product (pharmaceuticals and electronics) while the most negatively impacted will be bulk users like paints and glass.

The problem is that while higher prices might produce elasticity in demand (depressing sales of some end products or prompting big price hikes or use of alternatives, where possible) the supply side is totally inelastic because of the lack of “turn-on-able” mines either in the primary or secondary category. Glencore is due, in 2018, to bring the Katanga mine in the DRC back on line after a US$430mn overhaul of its processing system. The operation has the potential to add as much 22,000 tonnes of cobalt. The chart below from Dorfman Anzaplan shows the current breakdown of global producers.

To see chart and continue reading please click link http://www.mining.com/web/cobaltmania/