Cobalt Outlook 2016 Cobalt Outlook 2016: Near-term Deficit Still Expected
That’s largely because despite excitement about lithium-ion battery megafactories from Tesla and other major companies, 2015 didn’t bring as much cobalt market tightness as was expected. Indeed, this time last year, some market participants were calling for a cobalt deficit in 2015 — as yet, that deficit has not emerged.
To learn more about how cobalt fared in 2015, as well as what the cobalt outlook for 2016 is like, the Investing News Network (INN) got in touch with experts, including Andrew Miller of Benchmark Mineral Intelligence, and Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal. Here’s what they had to say.
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2015 cobalt themes: Market tightness overestimated
Speaking about cobalt in 2015, Miller began by stating that heading into the year, Benchmark expected to see the cobalt space gain attention from the battery sector. That’s because “in many ways the cobalt industry has the most fragile supply structure of all battery raw materials.”
However, while market participants have certainly begun to recognize cobalt’s importance to the battery supply chain, “deals to supply the upcoming battery capacity expansions have been slower than initially thought.” The underperformance mentioned above was the result — “supply wasn’t as tight as expected, and this saw prices continue to fall,” said Miller.
In a late November article, Metal Bulletin gives a good idea of exactly how much the cobalt price has fallen this year. In it, the news outlet states that while the cobalt price was “holding up quite well” until October — particularly compared to copper and nickel, its compatriots — it then “fell off a cliff.” At the time the article was written, low-grade cobalt was at a 35-month low of $10.35 to $11.40 per pound, down 25 percent since the summer.
In conversation with INN, Robin Goad, president and CEO of Fortune Minerals (TSX:FT), said that the dramatic price drop was caused by “Chinese liquidity pressures and new artisanal cobalt production in the Democratic Republic of the Congo.”
That said, while cobalt demand wasn’t stoked as much as some had hoped, 2015 did bring supply-side issues that could help to restore market balance and stoke prices moving forward.
On that note, Berry highlighted Glencore’s (LSE:GLEN) plan to cut 400,000 tonnes of copper production from its African operations. That “will also take roughly 15 percent of global cobalt production offline,” he said. Similarly, Miller highlighted that announcement from Glencore as something that the cobalt industry “has been following closely.”
That said, Miller said his firm sees Eurasian Natural Resources’ plans to supply the battery sector as “the most interesting piece of news” in the cobalt space in 2015. “This is the first of the existing majors seeking to address what could be a major bottleneck in the coming years,” he said.
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2016 cobalt outlook: Deficit in store?
While 2015 was a little underwhelming for cobalt market participants, it appears that 2016 may bring the market tightness expected last year, and along with it, a higher cobalt price.
Case in point: Berry said that demand for cobalt should “continue to grow well above global GDP” in 2016, while supply should continue to shrink. Catalysts for that will be “more copper and nickel production coming offline where cobalt is a by-product.” All in all, these factors “should support higher cobalt prices.”
Berry also pointed out that “cobalt doesn’t have a very deep ‘bench,'” meaning that companies are not waiting in the wings to meet the “looming supply requirements” expected to emerge in the next few years. He also encouraged investors to remember that a lot of cobalt is mined in Africa, where geopolitical issues — another threat to supply — are common.
Laying it out even more directly, Miller said that Benchmark “expect