😲Cobalt's Scarcity Having Massive Impact on Supply Chain😲 Concentration of Cobalt Sector Expected to Increase in Coming Years
Cobalt is a product we don’t often talk about, partly because of its relative scarcity but also because of the specificity of its industrial application.
With that said, the industries it does draw interest from are high-profile ones, including the growing electric vehicle (EV) sector.
Given cobalt’s relative scarcity and the sometimes volatile state of its supply chains, even small shifts in supply can have massive impacts. According to a report by Kagan, a unit within S&P Global Market Intelligence, global mined cobalt production in 2017 fell to 115,071 tons from 116,272 tons in 2016. Much of the drop came as a result of halted operations at the Lububashi Slag Hill operation in the Democratic Republic of the Congo (DRC).
A majority of the world’s cobalt is mined in the DRC (at 60.5% in 2017), meaning the cobalt price is subject, in many cases, to the political instability of the country, often leading to production stoppages.
According to the the Herfindahl-Hirschmann Index (HHI), which helps to assess the level of competition between companies in an industry, the cobalt sector is, unsurprisingly, very concentrated.
According to the S&P report, a reading greater than 0.25 indicates a concentrated market. As of 2009, the cobalt HHI stood at approximately 0.25 and, in the ensuing years, has risen to approximately 0.38 in 2017.
Per the report, that market concentration is likely to increase in the coming years, as the S&P report claims there is “very little likelihood that the DRC will cease to be the most important source of cobalt globally.”
Outside of the DRC, the Kagan report indicates cobalt production has increased at Vale’s Voisey’s Bay operation in Canada. As we recently noted, Vale inked a deal with two Canadian companies worth a total of $690 million. That, combined with the approval of an underground mine at Voisey’s Bay, will provide a “significant source” of cobalt from outside of the DRC, with the mine life possibly extending into the 2030s, the Kagan S&P report states.
As for political considerations, elections in the DRC are scheduled for the end of 2018. The country has been entrenched in a state of political limbo after President Joseph Kabila refused to step down at the end of 2016 (the end of his mandate). Kabila assumed power in 2001 shortly after the assassination of his father, Laurent-Dsir Kabila, and was elected in 2006 and re-elected in 2011.
According to the S&P analysis, post-2016 unrest “has not had a significant effect on the historically restive Lualaba and Haut-Katanga provinces hosting the Roan copper-cobalt belt,” but that there has been “lingering concern that the violence and disturbance could spread throughout the country.”
Large multinational miners have still, nonetheless, looked to cash in on the country’s cobalt reserves, despite the challenges to the business environment posed by political instability. In addition, miners have attempted to grapple with a revamped mining code, signed into law by President Kabila in April. The new code calls for higher royalties due to the government from minerals sales. With respect to cobalt, the revamped code called for a royalty increase to 10% (up from 2%).
https://agmetalminer.com/2018/07/18/concentration-of-cobalt-sector-expected-to-increase-in-coming-years/