From Larry Hill at Cannacord. Larry Hill had a site visit at our Kalongwe project and did the research report:
Cobalt demand forecasts largely unchanged - cathode chemistry the key
We have revised projections from our
Nov'17 update, with a slight uplift in demand to 2025e of 213kt (from 208kt) implying an 8% CAGR. Within the key growth segment of Li-Bs for EV/storage applications, we have left our forecasts unchanged with overall EV penetration of 14% of global sales by 2025 against 1.6% in 2017. Revised Chinese EV policy is likely to favour larger battery size; however, our assumptions remain unchanged at 38kWh for passenger vehicles. We have slowed the migration to nickel-rich (i.e. NMC811) ternary cathode, highlighting that battery management systems are likely to hold the key to overcome some current performances limitations.
Increase in DRC supply over 2018 to increase supply concentration
We expect large-scale operations such as Kamoto (30ktpa Co) and the Kolwezi tails project (20ktpa Co) will provide the majority of near-term supply, increasing the reliance on DRC-mined production (from 65% to 72% in 2021) at a time of increased sovereign risk (including a revised mining code and further delays to the presidential election).
Product traceability is expected to curb artisanal ore supply (currently ~7%), which is likely to improve ore/concentrate payabilities associated with the build-out of refined cobalt capacity we observed on our recent trip to the DRC. (!!) We note recent approach to miners by Apple and Samsung for long-term cobalt supply as indicative of willingness by the suppliers and consumers of battery chemicals (~55% of demand) for direct investment in mine supply, reflective of their aggressive growth plan.
Tight market supportive of elevated cobalt prices for the foreseeable future
Pricing over 2017 (+130%) has been sustained into 2018 (+13% ytd), which we view as demonstrating that a fundamental supply/demand imbalance (~10% deficit over 2017), rather than speculation, is likely to be a key influence on pricing over the medium term. While we consider the demand for traditional markets (alloys, ceramics etc.) will be satisfied through existing refined metals, adequately meeting the growth segment of battery precursor powder will be contingent on chemical capacity coming online.
We have revised our pricing method to reflect recoverable cobalt supply and demand, which sees our LT pricing (from 2025E) lifting 32%% to US$49/lb. Over the shorter term, we foresee the strong likelihood of structural deficits (~10% until 2020), potentially exacerbating the inclination for strategic stockpiling.
As such, we forecast the LME cobalt price will breach US$50/lb into 2019, with companies with near-term development projects or physical exposure best placed to benefit from what we view as the most positive pricing outlook of battery-related commodities under CG coverage
