If 2016 was the year of lithium, then 2017 may see its partner in the battery market, cobalt, get a lot more attention.
Cobalt prices haven’t been this high since 2011, so with the portable electronics sector pushing up demand and supply growth stagnant, Macquarie Research analyst Colin Hamilton thinks the price strength is fundamentally justified.
He highlighted China’s virtually non-existent domestic mine supply, which makes it heavily dependent on the Democratic Republic of Congo for cobalt.
At the same time, the Chinese government’s preference for higher-quality batteries could open up the lucrative new energy vehicle market to more cobalt penetration.
While technological risks remain on the demand side, and geopolitical risks threaten the supply side, Hamilton thinks the long-time underperformer in the metals market could finally find its shine.
“There has been a long wait for cobalt prices to start moving upwards in a conspicuous fashion,” the analyst said in a report, noting that prices peaked near US$50 per pound in 2007, and had fallen 50 per cent by the end of the global financial crisis.
As other metals rose, cobalt fell even lower from 2010 to 2012, then dipped to about US$10 per pound in late 2015.
However, the recovery that began in July 2016 has persisted, with spot prices for the metal above US$17.
Hamilton pointed out that these gains have been matched and even slightly exceeded by moves in cobalt chemical prices – the raw material critical for rechargeable battery production around the world.
With Chinese cobalt tetroxide prices having roughly doubled in local currency terms since mid-2016, the analyst noted that indicates battery demand is on the rise.
“Much of this improvement has to do with the wider industrial recovery,” Hamilton said, noting that the smartphone market saw a strong pickup in the second half of 2016, following a weak first quarter.
He also pointed out that cobalt usually benefits from the maturing period of such recoveries, as industrial consumers feel more confident.
“With strong expectations of growth in rechargeable batteries and energy storage, and cobalt having lagged lithium pricing significantly, it is viewed as the catch-up trade,” the analyst added.