Cobalt prices haverecovered by ~40% but will the rise continue?

MATTHEW BOHLSEN | SEPTEMBER 20, 2019 | 1 COMMENT

Cobalt metal spot prices have shown a remarkable recovery in thepast 2 months and are up ~40% from the July low. This is mostly due to the newsthat Glencore will shut down their giant DRC Mutanda Copper-Cobalt Minestarting in 2020 for 2 years to help balance the market. Other DRC miners havealso been reducing cobalt supply. It has even been rumored that Glencore andothers are looking to sell down their DRC assets mostly due to the horrific newtax regime the DRC brought in last year, which basically takes a 10% upfrontcobalt royalty, and taxes the profits at 50%. Clearly this leaves very littlefor the miner, who has in many cases invested hundreds of millions of dollarson mine and plant infrastructure. The DRC Government has become too greedy andinvestment into the DRC is withdrawing as a result.

Cobalt prices have recovered by~40% since the July 2019 lows

Will the cobalt price risecontinue?

The answer to this depends on your time frame and what happenswith both cobalt demand and supply. In the short term the cobalt price rise islikely to stall as restocking of inventories completes and China’s electric carsales have temporarily slowed in July and August.

The long term answer depends on what happens with future cobaltdemand and supply. The chart below gives a good guide.

Bloomberg’s cobalt demand versussupply forecast

Most analysts have similar forecasts to the above. The consensusis that from now until about 2022 we will see cobalt supply meet demand;however from 2023 most see cobalt deficits increasing each year. Theseforecasts assume electric car sales will continue to grow at a reasonable pace,which for now seems likely. Bloomberg’s forecast is based on electric car sharerising from 2.2% in 2018 to 3% in 2020, 11% by 2025, 28% by 2030, 43% by 2035,and 57% by 2040.

Interestingly recent news has suggested China is likely toannounce their new electric car sales targets by year end. The proposed targetsfrom China shown below are more aggressive than Bloomberg’s ‘global’ forecasts.

China’s proposed targets are said to be (not yet official andunder discussion):

· 2025: 20% of sales (alreadyestablished).

· 2030: 40% of sales.

· 2035: 60% of sales.

Bloomberg’s electric car salesforecast to 2040

Source: Bloomberg 2019 Global passenger EV sales outlook

The cobalt cliff may hit from2022/23

The so called ‘cobalt cliff” (massive cobalt deficits) still threatens to hit the market from 2022/23. This is made even more likely due to the fact truly affordable electric cars should be arriving globally by 2022, when electric cars become the same price as conventional cars. We are seeing signs of this already in China with electric cars selling under US$20,000. In fact the new 2020 Renault City K-ZE electric crossover (26.8 kWh battery pack, 250km range) has been reported that it will sell for about US$ 9,389 (other reports say US$10,000) after subsidies in China. In this case my thought is the battery will add an extra US$ 5000-6,000 (as Renault often quote without the battery included), but still the total package should be about US$15-16,000 (certainly under US$20,000). The era of truly affordable electric cars will have arrived, at least in China in 2020, and globally it should be by ~2022. This will accelerate demand for cobalt especially given Chinese subsidies now require a minimum 250kms of range to be eligible.

The 2020 Renault City K-ZE – Theprice will be under US$20,000 in China

My model suggests that from 2022 electric cars could becomecheaper than conventional cars; however this will depend on battery pricesfalling further. A massive spike in electric car sales from 2022 will putenormous pressures on the EV metals supply chain, and could again see EV metalprices spike higher, particularly for supply constrained cobalt.

For cobalt investors I would say just bide your time, the nextboom is not here now, but it is not far away.