Cobalt continued its upward trend during the first quarter of the year, as investor interest in the battery metal increased.
Demand for cobalt, a key metal in the lithium-ion batteries used to power electric vehicles (EVs), is expected to surge in the next few years.
As a result, the race to secure long-term supplies heated up in Q1 and analysts remain optimistic about the future of the metal.
Read on to learn what happened in the cobalt market in Q1 2018, including the main supply and demand dynamics and what market participants are expecting for the rest of the year.
Cobalt Stocks Have Grown 100% in the Past Year
Cobalt market update: Supply and demand
As mentioned, interest in cobalt continued to increase in the first three months of the year, as more carmakers and technology companies joined the race to secure supply of the metal.
Apple (NASDAQ:AAPL), BMW (ETR:BMW) and Samsung (KRX:028260) are just a few of the companies that are looking to strike deals for cobalt to meet the surging demand expected in the coming years.
One of the most significant deals of the quarter came in mid-March, when mining giant Glencore (LSE:GLEN) agreed to sell sell 52,800 tonnes of cobalt contained in hydroxide to Chinese battery recycler GEM (SZSE:002340) over the next three years.
However, securing supply of cobalt long-term directly from miners is not only about having enough metal to meet the future need in the market, but also about bringing transparency to the supply chain. That’s because more than 50 percent of cobalt is mined in the Democratic Republic of Congo (DRC), where mining has been often linked to human right abuses and child labor.
Several organizations, including Amnesty International, the London Metal Exchange and the newly formed Better Cobalt project, have pointed to the lack of transparency in the supply chain and are seeking ways to ensure companies can trace their metal sources.
“I think [buying cobalt directly from miners] will be one of many solutions to cleaning up the cobalt supply chain. Not everyone is going to be able to source material directly from a mine, so there will still need to be a lot of work around the supply chain and within the DRC itself to raise standards across the board,” Benchmark Mineral Intelligence analyst Caspar Rawles said.
During the first quarter, the DRC also signed a new mining law that will see taxes and royalties for cobalt increase to 10 percent if the metal is categorized as “strategic.”
Battery Metals in 2018
“[The new law is] going to raise the cost of doing business in the country, but I actually think that over the next two years, the amount of cobalt coming from the DRC is going to increase as opposed to decrease,” battery metals expert Chris Berry of House Mountain Partners said.
As supply concerns continue to hit the market, another option market participants are keeping their eyes open for is “the increased uptake of and establishment of technology to do successful battery recycling,” said Alex Laugharne, principal consultant at CRU Group.
According to CRU Group, cobalt from dead batteries could add 25,000 metric tons of supply by 2025. Similarly, Belgium-based battery producer Umicore (EBR:UMI) expects recycling to become a growing source of cobalt for the market, while Samsung SDI (KRX:006400) has already announced recycling plans to reduce its dependence on the DRC.
Cobalt market update: Price performance in Q1
Looking over to prices, cobalt prices rose beyond most expectations throughout Q1, with the most rapid rises occurring in the final few weeks of the quarter, according to Benchmark Mineral Intelligence, which has recently launched a cobalt battery metal price.
“The rises were helped by a number of factors … the most significant was increasing demand from the battery sector, but also strong demand from more traditional uses such as superalloys,” said Rawles.
He added that during the quarter there were strong orders in the passenger jet industry, which is the major consumer of cobalt-based superalloys. Increasing tightness in cobalt metal supply also supported prices, particularly for briquettes and broken cathodes.
“Metal prices are still used as the basis for pricing structures in long-term supply contracts for cobalt raw materials at the mine level. That’s why increases in the metal price have the power to impact the whole industry, including cobalt chemicals that are used in batteries,” Rawles explained.
LME cobalt started the year at US$75,000 per tonne and climbed 24 percent to end the quarter at US$93,250.
Cobalt Stocks Have Grown 100% in the Past Year
Cobalt market update: What’s ahead?
As the second quarter begins, there are key announcements that could impact the cobalt market.
According to Rawles, one of the the key factors to watch will be if Glencore brings cobalt production from its Katanga project back online, and how quickly supply can be ramped up at the processing facility.
“If this happens ahead of schedule and/or ramps up quickly it might help to cool the market to some degree, although I don’t think prices would come off significantly,” he explained.
Similarly, Laugharne sees the market being a little bit more balanced over the next few years as Katanga and ERG’s Metalkol Roan Tailings and Reclamation project ramp up to meet demand, “but beyond that, the pipeline of new cobalt projects is pretty bare.”
Another key factor that could influence pricing will be the supply of metal. If any mines have production issues, this will have the power to impact prices significantly.
“Markets are already very stretched with producers largely sold out, only covering their long-term contracts and little to place in the spot market, so watch out for closures or maintenance of any kind,” Rawles said.
Finally, if any large long-term deals are reported between automakers and raw material suppliers this could shock the market and impact pricing.
“The second quarter may be a little early for this, but I think the announcement of the deal between GEM and Glencore in Q1 may have caused concern to some who will look to lock in deals sooner than originally planned,” Rawles added.
Looking ahead, Benchmark Mineral Intelligence expects prices to continue to increase but not at the rate seen in Q1. “I don’t expect any major correction following the recent rapid gains, but as we approach the historical all-time highs I think there will be more resistance to further rises,” Rawles said.
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