Cobalt price leaps $40-per-lb resistance barrier as demand intensifies
Cobalt prices have consolidated their move last week to more than $40 per lb, amid increased spot demand for metal against a backdrop of tight supplies, a limited number of sellers, and strong downstream demand.
“The days of sub-$40 [per lb] buying are history,” a trader source said on Monday March 19. High-grade cobalt prices were assessed at $41.70-43.00 per lb, in-warehouse, on March 16. This was up from $39.50-40.75 per lb a week earlier, and from $40.40-41.95 midweek. Low-grade cobalt prices rose to $41.20-42.50 per lb, in-warehouse, at the end of last week, jumping from $39.50-40.75 per lb at...
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China playbook is no help in this commodities cycle
03/20/2018 - 03:46
With the global economy showing sustained synchronous growth for the first time in well over a decade, sentiment in commodities markets is on the turn. Prices have risen rapidly over the past three years, with everything from oil and coal to non-ferrous metals benefiting from a shift in fundamentals.
While global supplies are currently keeping pace, strong demand growth is beginning to expose the cost of a half-decade of severe under-investment across the commodities complex. As we embark on this new price and investment cycle, it is worth asking what type it will be.
It will not be another "supercycle” like that of the first decade of this millennium when massive increases in Chinese demand for materials combined with loose monetary conditions to send prices for major commodities up to fivefold higher.
No singular event on the scale of China’s transformation is now in prospect. This cycle will be of shorter duration. But it will also have an entirely different dynamic, with a defining tension between the irresistible force of a global push to reduce emissions of carbon and other pollutants, and the immutable fact of constrained supply.
The popular phrase to describe this is the “energy transition”. But this label is too narrow. In fact the world has embarked on an interconnected “commodity transition”, affecting many different markets and providing a newly complex backdrop for resource investment decisions.
The expected shift from internal combustion engines to electric vehicles is an obvious example. Governments, car manufacturers and consumer groups all seem to be pushing full steam ahead towards an all-electric vehicle, lower-carbon future. They are in danger of radically over-estimating the potential effects of EVs on oil demand, and simultaneously under-estimating the wider implications for the commodities supply chain.
Plausible estimates are that the global EV fleet will grow from 3m vehicles on the road today to as many as 40m by 2030. Yet even expansion on that scale will have only a modest effect on global oil demand — curbing consumption by only 1m barrels per day, or less than 1 per cent of expected global oil demand in 2030.
The oil demand effect could easily be negated by a relaxation of fuel economy standards in the US as mooted by the Trump administration.
The implications of EVs for metals markets are considerably greater. Start with cobalt. On most published projections for EV fleet growth, demand for cobalt could rise between four and fivefold by 2030. That poses a serious supply challenge. Cobalt is rarely mined on its own; it is generally found as a byproduct of copper and nickel production. We are unlikely to see pure-play cobalt projects developing any time soon.
The potential consequences for the copper market are just as great. An EV requires approximately four times more copper than a traditional ICE (internal combustion engine) vehicle, and as much as five times if you include the charging infrastructure.
So shifting 10m unit sales per year of ICE vehicles into EVs by 2030 will create additional copper demand amounting to 100,000 tonnes per year. Moving to a more aggressive scenario of 25m EV sales per year sees that number rise to more than 300,000 tonnes. Recommended
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In recent years, global consumption of refined copper has grown by only about 500,000 tonnes per year. So if governments continue to push EV adoption, we may need to increase the amount of new copper available each year by 60 per cent to meet these targets. Put another way, this would be like needing 1m b/d oil supply growth each year above and beyond the amounts required to meet current growth in demand.
Yet, far from being in a position to ramp up to meet this demand, the copper market is instead facing the possibility of significant deficits in coming years due to the lack of new mine investments and deteriorating ore grades. The bottlenecks in the nickel market may end up being even more severe, and yet the current push is to use more nickel and less cobalt in emerging battery chemistry.
China’s drive to clean up its environment is also having effects on commodity markets. Reductions in Chinese steel and aluminium capacity have significantly tightened the markets for those commodities. A shift in the relative roles of coal and gas in China’s power generation mix has created a seismic shift in the market for liquefied natural gas from what looked like a structural surplus a short while ago to a broad supply-demand balance and a potential shortage in three years.
We have seen more than $1tn of oil projects cancelled in the past few years, amounting to over 20bn barrels of reserves that will remain undeveloped. Despite the global focus on reducing carbon emissions, the fact is that the world will still need some 100m barrels of oil a day for many years to come. So those missing investment dollars will surely return to haunt us, especially if the EV future takes longer to arrive.
There could be several boom and bust cycles in the oil market and significant upheavals in other commodity markets before electric vehicles become established as the world’s car of choice. Investors need to understand these connections and take a holistic view if they are to ensure that capital is appropriately allocated in the new “transition cycle”. Saad Rahim is the chief economist of Trafigura, one of the world’s biggest commodity traders.
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VANCOUVER (miningweekly.com) – Cobalt company Cobalt 27 is seeing an ideal storm brewing for its key commodity as the adoption rate of electric vehicles (EVs) accelerates faster than even optimistic forecasts had speculated.
“Cobalt 27 is a proxy for the adoption of the EV,” executive chairperson Anthony Milewski told Mining Weekly Online in an interview. “What our most recent raise tells one is that the thematic is picking up pace.”
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He pointed to the EV adoption rate hitting 1.8% at the end of 2017.
“Currently, Wall Street has projections for 2025 of an EV penetration rate of 15%. If you extrapolate the current growth rate, 462% year-on-year in January, and EV adoption growth of 1.8% at year-end, one is actually looking at something closer to 30% penetration by 2025.
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“That blows away any analyst expectations and it comes back to this thing about disruptive technology,” he said.
When he thinks about disruptive technology – whether it’s tin foil, or laptops – there are really two qualities that plays out time and again in the adoption process. The first is the price, and whether it costs roughly the same as the technology it is disrupting, and the other is utility, Milewski said. For EVs, the utility has two prongs, comprising distance travelled and recharge ability.
He noted that these barriers to entry have already been broken, since the next generation of EVs will be able to travel further than 99% of all US citizens’ commuting requirements and, with Tesla’s supercharging infrastructure now largely in place in the West, more barriers to adoption break down.
“What we’re seeing is the barriers to entry falling away and mass adoption starting. I think it’s an extremely exciting time and I think it’s going to completely take the market by surprise how quickly the adoption rate accelerates now,” Milewski stated.
He said the EV adoption process is not unlike that of the original iPhone, which received a somewhat cold initial reception from several quarters. However, initial scepticism soon gave way to a nearly 100% smartphone penetration rate in the US, within as little as ten years. “Every time with a new technology, we see the market gradually build to a tipping point, from where the adoption rate just accelerates beyond anyone’s expectations. I think we are reaching that point now.” NO ALTERNATIVE
According to Milewski, rumoured implications of industry replacement of cobalt’s role in lithium-ion batteries, owing to its steep cost curve, is not a threat to the market at this stage.
While the natural evolution of battery chemistry is an issue, depending on whose numbers one uses, Milewski argued that the lithium-ion battery sector has already seen $100-billion of infrastructure investment and commitment, which proves one thing – the nascent industry is not going away soon. “The infrastructure to manufacture lithium-ion batteries are now in place to supply the automobile industry for the coming decades. The commitment is done.
“It’s the classic Betamax vs VHS paradigm, whereas Betamax might have been better, VHS won the war. Similarly, the EV market is already tailored to the lithium-ion battery and so, we are talking about a slow evolution over time,” he stated.
What started as a 1:1:1 nickel/manganese/cobalt battery chemistry, evolved to a 5:3:2 chemistry, with a 6:2:2 now being rolled out. The next generation, which is between two and four years down the line, will approach an 8:1:1 chemistry, pointing to the continued use of cobalt and nickel going forward.
He explained that one has to understand that these battery manufacturers are very slow-moving, multibillion-dollar corporations and are image conscious. What happened to Samsung and its calamitous launch of the Note 7 smartphonein late summer 2016, is something no battery or automaker wants to deal with today. In Samsung’s case, a new, larger battery did not go through a rigorous enough testing phase, with the result being spontaneously combusting mobile phones. The incident wiped billions off of Samsung’s equity value.
“If the panacea battery was created today, and everything were on track for commercialisation, it would still not be seen near an EV for at least six years, as testing is undertaken to prevent similar incidents. The replacement battery does not yet exist today. Air and solid-state batteries represent further evolutions – all of which, by the way, use cobalt in them – but they are still a far way off into the future,” Milewski said.
According to him, the most pressing issue for these manufacturers is to secure the supply chains for the feed materials to provide for the increased EV adoption rate. PHYSICAL HOLDING
The cobalt market is currently enduring extremely tight supplies amid growing demand. However, Milewski expects the cobalt price will have to creep past the $60/lb level to incentivise base metal miners to add additional units and circuits to high-pressure acid leach plants and at refineries.
Milewski pointed out that about 65% of the world’s cobalt comes from the Democratic Republic of Congo (DRC), and the geopolitically unstable jurisdiction’s share will only increase as the significant RTR and Katanga projects come on line later this year, pushing the DRC’s contribution to between 75% to 80% of global cobalt output.
Milewski pointed out that once one steps outside of Africa, to more mining-friendly jurisdictions such as Canada, Cuba, Russia, Australia, Brazil and Chile, there really are few quality projects to choose from. And that was the reason why Cobalt 27 jumped at the opportunity to take a 1.75% net smelter return royalty (NSR) on RNC’s Dumont nickel/cobalt mine’s future production.
“Dumont is one of the best projects outside of the Congo for cobalt. We’ve consistently told our shareholders that we’ll keep out of the DRC, except if Glencore wants to do a deal – which they don’t, by the way. Our shareholders are large institutional shareholders who are conservative in nature. They don’t want the risk involved.”
He categorised Dumont as a “critical NSR” to get, in step with the company’s strategy to close several more NSRs this year. “We need a pipeline for our shareholders, and we also need current production and Dumont is one of those prime near-term projects that will probably get built in this cycle.” Cobalt 27 holds a stockpile of nearly 3 000 t of cobalt – the largest holdings outside of China of any public company, and it plans to leverage it to good advantage as downstream demand intensifies.
“Our business model strips out the risks associated with traditional mining. Our holdings of physical cobalt put us on the map as an M&A target, but it also gives us access to very low-rate financing, using cobalt as collateral. We really did not anticipate the response from the end-users, who are scratching their heads about how and where they are going to secure their raw materials from, especially if something goes wrong and shuts out DRCcobalt supplies,” he said.
CLQ Price at posting:
$1.25 Sentiment: Hold Disclosure: Held
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