Cobalt prices have reached record high levels due to demand from the automotive industry, which requires this rare metal for the production of lights and electric batteries.
The price of a ton of cobalt rose in mid-February on the London Metal Exchange (LME) to $82,000, its highest level since tracking began in 2010. Since the beginning of 2016, it has nearly tripled. Meanwhile, the sharp increase in demand has not yet peaked, emphasize the specialized cobalt sales company Darton Commodities.
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– The market is expected to record a surplus in supply by 2020 when forecasts for exponential growth in electric vehicle sales should be confirmed, states Darton Commodities’ annual report.
– In 2017, lithium-ion batteries in mobile electronic devices accounted for about 72 percent of total cobalt consumption (in lithium-ion batteries), the company notes.
This share is likely to decrease over time due to the growth of the automotive sector, according to Darton Commodities.
– Electric vehicles came of age in 2017, with a sales increase of 51 percent, analysts from Macquarie note, adding that this growth could slightly slow this year due to the suspension of government subsidies in China.
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In the rest of the world, more and more countries plan to gradually phase out vehicles that use gasoline and diesel as fuel. Therefore, manufacturers are devising strategies to meet the demand for electric vehicles.
In May, Swiss mining giant Glencore announced that it is negotiating with Volkswagen and Tesla for cobalt supply, quoted Bloomberg’s CEO Ivan Glasenberg.
Production Increase
While Tesla does not reveal much about its raw material needs, Volkswagen’s negotiations with cobalt producers have reportedly been halted. To meet demand, Glencore announced at the end of 2017 that it intends to produce about 63,000 tons of cobalt by 2020, compared to 27,000 produced in 2017.
Since the beginning of 2016, it has nearly tripled.
An additional reason for market interest is the fact that cobalt is primarily a byproduct in copper and nickel mines. The amount of cobalt in a ton of ore is so small that a large concentration is needed for production to be profitable.
– Therefore, proven global cobalt reserves depend on the economic sustainability of relevant copper and nickel mines, warn analysts from Natixis.
Thus, a drop in copper and nickel prices could hinder existing cobalt mining activities before other mines are activated to compensate for reduced production.
The London Exchange Overestimated Cobalt’s Potential
It should also be noted that last year more than half of the cobalt was produced in the Democratic Republic of Congo, which intends to quintuple concessions for mining this metal due to the surge in demand. Some analysts believe that the daily price set by the London Exchange may have overestimated cobalt’s potential. Indeed, cobalt is mainly traded off-exchange.
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Financial investors may have created a frenzy in the market due to the potential of electric vehicles, warn Darton Commodities.
– In 2017, average annual cobalt prices more than doubled due to strong consumer demand, limited availability of cobalt in the physical market, and increased metal purchases made by investors, concludes the U.S. Geological Survey.
