Everyone loves cobalt
POSTED BY:
TRISH SAYWELL JUNE 7, 2017
Cobalt prices have nearly doubled in the first quarter of the year as demand for its use in rechargeable batteries and the electric-vehicle market in particular is expected to take off. The Northern Miner spoke about the dynamics of the cobalt market with Edward Spencer, a senior consultant and head cobalt market analyst at the CRU Group in London. Spencer joined CRU in 2015 as a senior consultant to CRU’s nickel, stainless steel and special alloys group, and has also worked on outlooks for molybdenum, nickel and ferrochrome. He has a PhD in economic geology from Imperial College London, where he specialized in the decoupled mineralization of base metals.
The Northern Miner: Where have cobalt prices ranged over the last year or so?
Spencer: The price of 99.8% cobalt metal started at US$10.25 per lb. in January 2016 and ended the year at US$14.15 per lb. The prices have really ramped up in the first quarter of 2017, however, increasing from US$14.15 per lb at the start of January, to US$27.75 per lb at the end of March—nearly doubling over the three-month period.
Last year, the annual average price for 99.8% minimum cobalt metal just came in at around US$12.1 per lb. If you look at that on an annual average basis, the last time it was that low was in 2003, and in real terms 2002 was even lower. So we are seeing 14-year lows on the cobalt price on an average annual basis in 2016.
Part of the reason why we were so bullish last year was because we were scraping along the bottom and yet there is all this growing demand for things like electric vehicles. So we were always anticipating a big price response in 2017. Essentially, there were some gains towards the end of 2016, the price went up by around US$2.00 in the last six months of 2016 to around US$14.15 per lb at the end of the year. But this was only the beginning of the surge that we have seen in 2017.
If you look at where we are now, we’ve gone up by over 100% on last year’s annual average. For 99.3% cobalt metal, the price now is around US$25 to US$26 per lb., whereas the high grade cobalt (99.8% minimum) is just over US$27 per lb. But in essence, we’re still hearing offers for high grade coming in now at just above US$28 per lb. 99.3% is the lower-grade metal type, those are the two broadly stated metals–99.3% and 99.8%.
TNM: A few years back there was a rush into rare earth metals but I think the fundamentals for cobalt are a lot different?
Spencer: With rare earths there was the whole strategic position that China had in terms of rare earths supply, so they were dominating rare earth production with very limited supply coming from elsewhere in the world. In a similar fashion, China absolutely dominates production of cobalt chemicals and in 2017, will probably produce around 80% of the world’s cobalt salts — including cobalt sulphate and cobalt oxide, which are the two main chemicals you use in lithium ion batteries. China is in a very strong strategic position to produce these chemicals, and the majority of that material is essentially being refined from hydroxide and concentrates imported from the DRC. The DRC is responsible for around 60% of the world’s mined cobalt production so there are big questions about supply risk. If we see disruption to the DRC-China supply flow, we could see prices jump even higher. So the fact that you’ve got demand for electric vehicles growing out of what is in essence, a very small base, is going to put pressure on cobalt supply.
TNM: Where do you see cobalt demand moving for electric vehicles?
Spencer: Cobalt demand for electric vehicles is going to grow at a rate of 25% per year for the next five years and while that isn’t the biggest end-demand, it drags up demand for cobalt significantly. Demand for most other metals (such as nickel and copper) is only growing at about 2-3% a year, whereas cobalt demand is growing at an average growth rate of 7%. This puts pressure on cobalt supply as over 90% of the world’s cobalt is mined as a by-product of nickel and copper operations. So if you have nickel and copper demand growing at a couple percent per year and yet demand growth for the by-product, cobalt, is growing at 7%, you begin to get quite a significant tightening of by-product supply.
TNM: Are there any primary cobalt mines?
Spencer: There is only one primary cobalt mine in the world and that’s in Morocco. The mine is called Bou Azzer and is owned by CTT or Managem—part-owned by Morocco’s Royal Family. It produces cobalt and arsenic. You also have some primary material coming from artisanal miners in the DRC–the rest is by-product.
TNM: Can you discuss overall cobalt demand?
Spencer: In terms of demand, the cobalt market is around 100,000 tonnes per year. If you have demand growing at 7% per year, it means that five years down the road you’ll need to find an additional 40,000 tonnes of cobalt. So we’re looking at, in five years, needing an additional 40,000 tonnes of cobalt to meet growing demand from the lithium-ion battery industry. Eurasian Resources’ RTR project and Glencore’s re-starting of Katanga could essentially provide 40,000 tonnes of contained cobalt to the market once in full capacity.
TNM: Apart from the battery markets, where else is cobalt used?
Spencer: Outside lithium ion batteries, cobalt chemicals are used in things like pigments, dyes, catalysts, and ceramics, which consume quite a lot of cobalt, but in terms of the main growth areas, the next biggest after lithium ion batteries is airplane turbines. All aircraft engines will need super alloys with a high content of cobalt in their hot sections. So that’s the next biggest sector and you’ve also got cemented carbides, which are used in metal cutting, automotive production, and a number of other applications were having hardened tools are key.
We model around 50 end-uses for cobalt and out of these, we forecast pretty healthy growth in about 46. There are only four end-uses that appear to be contracting such as gas-to-liquid catalysts and NiCd batteries. So across the board, there is very strong demand growth.
TNM: Are there any big cobalt projects coming on line in the near future?
Spencer: If you look at the market balance going forward, we’re waiting for those big projects like Eurasian Resources’ RTR project and Glencore’s Katanga to come on line in the DRC, and that probably will be in 2019. Meanwhile, we have the ramp-up of Tesla’s gigafactory and a series of other battery factories coming online in 2018-2019, so the market will be really squeezed for the next three years, which should really support prices at current levels.
TNM: But they could also move higher.
Spencer: They could go higher if there’s some political instability in the DRC for example, or energy infrastructure problems in the DRC. Then we could see a huge shock in supply going to one of those peaks like around US$50 per tonne, but at this point we think indications from consumers and suppliers suggest that prices can be supported at US$25 to US$30 per lb.
Eurasian Resources Group will come on line most likely in 2019 and they’re going to reprocess old tailings in the Kolwezi areas in the DRC to create cobalt hydroxide, which can be sent to China to be refined into battery salts. The project has a high cobalt to copper ratio, which gets over the problem of creating lots of unneeded copper in order to bolster cobalt output. The rocks are already broken up, making the ramp up fairly rapid. Glencore is the biggest producer.
TNM: Where are most of the other cobalt as by-product mines?
Spencer: There are around 60 cobalt mines in operation. There are quite a few in Australia. There are laterite deposits in Indonesia, the Philippines, New Caledonia, Papua New Guinea. You have by-product cobalt coming from platinum mines in South Africa and then you’ve got quite a few big sulphide nickel-cobalt mines in Canada and Russia. So they are all over the place really, but the vast majority is coming out of the DRC.
TNM: Which are the ones in Canada?
Spencer: Some cobalt is coming from the nickel operations of companies like Vale and Glencore, such as Voisey’s Bay, Raglan, Thompson. They are all producing lots of cobalt. I think they’d struggle to produce more cobalt, however because of the problem of subdued nickel prices. Ramping up nickel production so that you can produce more of your cobalt metal isn’t really a possibility.
TNM: How big do you think the cobalt deficit will get in the next few years?
Spencer: We think the market could move into a 5,000-tonne deficit in 2017 having been in a smaller deficit in 2016 and the pricing reflects that we’re moving into a global deficit. There are global stocks that are moving down, and that draw-down will make the market more prone to price volatility going forward. There are precious few projects that are in advanced stages of development and that’s because of the falling investment cycle in new nickel and copper projects. Because cobalt is all by-product supply, it’s very hard to get projects up and running regardless of the cobalt price, so you really have to find those rare deposits that have cobalt and there are precious few of those anywhere near an advanced stage at the moment, so it’s all pointing to more of a squeeze going forward.
We think with prices having done what they’ve done, we’ll see a bit of a response in global supply, but because there are very few projects being developed, supply is going to struggle to keep up with demand growth.
TNM: Thank-you.
(20min delay)