Cobalt prices seen rising sharply as deficit balloons: BMO
New York (Platts)--4 Dec 2017 445 pm EST/2145 GMT
https://www.platts.com/latest-news/...rices-seen-rising-sharply-as-deficit-21725171
Cobalt prices are likely to rise significantly in the next two years as the industry struggles to meet rising demand from batteries used in electric vehicles, BMO Capital Markets said Monday.
It sees the annual average cobalt price peaking at $40.50/lb ($89,290 mt) in 2019, from current levels of about $30/lb and does not rule out the possibility of cobalt prices doubling from current levels in the timeframe. So far this year, 99.6% broken cathode cobalt -- the grade often used in chemicals and batteries -- has averaged $25.58/lb, according to Platts assessments, having started the year at a midpoint of $14.75/lb.
But the investment bank put this year's cobalt rally down to continued growth in smartphone sales.
"Smartphone batteries are still the main end use market for cobalt," it said.
After a weak first half of 2016, demand growth recovered in the second half "and has continued through 2017."
BMO estimated that global cobalt mine supply is down 2.7% in 2017, with "weakness at Glencore operations [Katanga] and disputes at GTL's Big Hill primary cobalt tailings operations."
These issues have reduced cobalt production in the Democratic Republic of Congo by 5,000 mt cobalt contained.
BMO said that on December 30, 2016, China announced a revised "E-bus subsidy policy." This prioritized higher battery quality technologies, essentially penalizing LFP (lithium iron phosphate) and benefiting NMC (nickel manganese cobalt) battery technology.
"Chinese battery manufacturers have scrambled to add cobalt-containing NMC capacity and also raw materials to fill this given expectations that equivalent quality-driven subsidies will be put in place for car batteries, BMO said.
Up until then, cobalt had been the "perennial underperformer in metals markets," it added. While other industrial metals benefited from quantitative easing-led reflation, starting in 2010, cobalt continued to fall in price, " a trend which persisted until 2013," BMO said.
Cobalt prices have now risen more than threefold since December 2015 to levels last seen just before the global financial crisis, beginning in September 2008.
MARKET WORTH $6.6 BILLION ANNUALLY
"This makes cobalt the best performer of the commodities we cover over the past year in terms of price gains, and at current spot market pricing, a market worth $6.6bn per annum," BMO said.
It also said cobalt had risen back above the longer-term inflation-adjusted average of $22/lb.
"Cobalt has a history of spikes higher following a period of underperformance, which is mainly related to the structure of the supply side. Without a primary mine supply side to speak of, cobalt has less of an elastic supply buffer than peers," the bank said.
Most of the world's cobalt production is as a byproduct to either nickel production or copper output, but not all copper mines produce cobalt as byproduct.
The bank said the industry continues to be overly dependent on supply from the Democratic Republic of Congo. Around half of the cobalt produced globally is mined in the DRC and refined in China, BMO said.
It said the cobalt market has been in deficit since 2013, and projected a deficit of 4,300 mt in 2017, which is the largest the market has seen. It put the size of refined cobalt supply in 2017 at 96,200 mt, up from 92,900 mt in 2016. For 2018, BMO forecast supply of 105,700 mt and consumption of 109,200 mt.
Consequently, even a large increase in refined output is only likely to reduce the deficit, with surpluses unlikely again before 2020-2022.
BMO RAISES GLENCORE SHARE PRICE PERFORMANCE ON COBALT OUTLOOK
BMO raised its share price performance for global mining and commodities group Glencore, largely on the outlook for the price of cobalt for the next few years.
It said cobalt has "proven to be surprisingly positive for Glencore's earnings."
BMO gave Glencore's shares an "outperform rating" and a price target of 400 pence/share. Glencore's shares rose 3 pence to 341.75 pence on its primary listing on the London Stock Exchange on Monday.
CITI RAISES COBALT PRICE FORECAST
Citi also made a price forecast for cobalt on Monday of $75,000/mt ($34.01/lb) in 2018 and $80,000/mt in 2019 and 2020.
"Cobalt prices have more than doubled to $68,000/mt during 2017. The sustained high price level is a reflection of a deficit market and low inventory levels," wrote Citi metals analyst Max Layton in a report.
Cobalt is typically priced in $/lb on the physical market, but on the illiquid futures contract on the London Metal Exchange, it is priced in $/metric ton to comply with EU legislation on weights and measures.
--Anthony Poole,
[email protected]
--Edited by Richard Rubin,
[email protected]
(20min delay)