Cobalt is now firmly on the radar for the growing number of resources sector investors focused on the rapid growth trajectory for next generation metal-bearing technologies. As a key battery metal, cobalt sits on the “A-list” of emerging metal markets with significant near-term and longer-term growth potential.
Cobalt is now increasingly seen as a ‘green metal’ given its end-use in rechargeable batteries and therefore as a provider of ‘low carbon’ power. In lithium-ion batteries, cobalt is present in the lithium cobaltite cathodes used in smartphones, and also with lithium-nickel-manganese-cobalt and lithium-nickel-cobalt-aluminium oxide cathodes which are both used in laptops, electric vehicles and potentially also in home storage power-boards.
The list of other cobalt end-uses is a long one and includes recent advances in high-strength, wear-resistant, superalloy usage for high-performance aircraft engines, in magnets including for wind turbines, in catalyst applications and also through to traditional uses of cobalt in pigmentation and ceramics including as cobalt blue.
Future supply, although set to ramp-up, is forecast to experience delays in matching rapidly growing demand.
As such, the cobalt market is now tipping from one of surplus metal towards annual deficit with higher future prices the anticipated outcome.
Indeed, specialty metal analysts at CRU Group predict that cobalt prices could once again reach up to $US18 to $US20 per pound for both 99.3% cobalt and 99.8% cobalt as demand takes off in the period 2016 to 2020 and beyond.
Such higher prices will benefit producer margins but stop short of placing undue pressure upon consumers to ‘design out’ cobalt from technological advancements due to extreme prices.
Cobalt’s long-term demand-side growth then looks positive if it stays as a key constituent in the preferred lithium-ion battery technologies adopted by electric vehicle manufacturers as their annual production grows.
The Democratic Republic of Congo already leads the pack on global mine production at around 56% of supply, led by Tenke Fungurume (Freeport-McMoRan Inc) and Mutanda (Glencore) with that dominant position in the upstream industry set to remain entrenched in future.
The DRC numbers are already impressive and look destined to rise further by 2020. Of around 112,000 tonnes global cobalt mine production in 2015, the DRC makes up some 63,000t of this.
Fast-forward to 2020 however and the DRC numbers rise again. That is, by the turn of the next decade global mine production of cobalt could reach over 170,000t with the DRC’s contribution breaking through the 100,000t per annum mark. For context, Australia and Russia currently record meaningful cobalt mine production (as a by-product of nickel), but only at around 10% that of the DRC annual production. That is, Australia and Russia sit at around 6000tpa level of contained cobalt production. Elsewhere other significant producers of cobalt mine production include Canada, Cuba, the Philippines, Madagascar and Zambia.
As a by-product and co-product of nickel and of copper mining, cobalt mine supply has come under increased pressure as prices for these mainstream London Metal Exchange-traded metals have fallen precipitously in 2015: That is, both nickel and copper prices are trading at multi-year lows.
Cobalt has not been immune to the travails of the weaker LME prices with average prices for 2015 finishing below $US14 per pound despite overall healthy demand-side growth of around 7%.
Low copper prices in particular remain a threat to the timing of central African cobalt production growth, as evidenced by the recent closure of Glencore’s Katanga (DRC) and Mopani (Zambia) operations for 18 months on low copper prices.
The future ramp-up of central African mine supply will include cobalt concentrates, mixed copper-cobalt concentrates, hydroxides and carbonates.
These intermediate cobalt products will largely be destined for refining and end-use consumption in China, with China at the forefront of funding new project developments and related infrastructure.
Cobalt’s future outlook appears far from blue: Watch that space.
