Cobalt Fundamentals Signal Reversal In Decline; Price Stability and Rise

The mind numbing decline in cobalt prices that proved vexing for investors appears to be coming to a halt. The Editor admits the market is dynamic, thinly traded and ripe with volatility. However, there is reason for optimism at the investor and producer level. While it might not bode well for consumers and battery producers, the cobalt price rise might be ready for a change in direction and trajectory.

Early signs of the change came with the Reuters story last week from Sherritt.

Sherritt Sees Soft Cobalt Prices As Temporary Trend

According to the story “Sherritt International Corp said on Tuesday that recent weakness in the price of cobalt, a key material in rechargeable batteries, is expected to be temporary as demand continues to grow from the electric vehicle market.

Toronto-based Sherritt said prices softened in the second quarter on growing market sentiment that price gains had outpaced an increase in demand. Consumers then began delaying purchases, waiting for prices to bottom, the miner said.

In 2017, the ascent of cobalt prices  was an investors dream.  The average price of cobalt rose 66 percent over the same three-month period in 2017, said Sherritt, to $42.93 a pound, marking an eighth consecutive quarter of higher prices.

Cobalt Goes Both Ways: Chemicals Versus Metal

The recent weakness in cobalt chemical prices saw Chinese refiners switch to producing metal.  Producers often shift between markets when inventory levels grow and customer orders slow.  This shift among Chinese producers sent prices down 30 percent in recent months. 

The investor love affair with cobalt arose with the electric-vehicle revolution.  Given the importance of cobalt in extending the life of lithium-ion rechargeable batteries, there was a boost in demand and prices for cobalt.  There is one key consideration, however, the shift to massive consumption of cobalt for battery production is unlikely to happen until the next decade.  This will occur when production and sales of electric cars expected to grow significantly. 

According to Reuters “the rise in London Metal Exchange cobalt to a contract high at $98,000 a tonne in April stemmed from robust demand among traditional sectors such as jet engine makers and falling metal supplies, not – as many believe – surging demand from battery makers.” 

 

 

Industry sources indicate that prices will strengthen on supply risk.  Notably, there is a major weak link in the supply chain with the Democratic Republic of Congo (DRC). Roughly two thirds of the world’s cobalt is supplied by the DRC.  The DRC is notorious for issues with child labor and political risk.

In its own words, Sherritt (as any producer might argue), suggests:

“As cobalt prices have a limited impact on overall battery pack costs, high prices are not expected to cause supply-chain disruptions or delay the growth of the electric vehicle market.”

This morning there is additional evidence in support of a rising cobalt price.   According to the August 6 edition of ElectronicsWeekly.com, lithium-ion prices are headed for a steep increase.

Rising cobalt prices push up li-ion battery costs

It will be interesting to see how cobalt prices trade in the coming weeks.  Numerous institutional investors are licking their wounds as a result of the huge price decline in Cobalt 27.  The ambitious financing appeared to be a “maiden voyage” for many investors into the new energy metal market.  Feeling the time was ripe, investors in the recent financing experienced hundreds of millions of dollars in losses.  One winner in this was Vale, the Brazilian iron ore-nickel producer who pulled off a major financing for its Canadian mining business through the combined Wheaton-Cobalt 27 streaming deal.

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