Hard-hit cobalt is recovering amid EV boom

Cobalt has been hit harder than other metals over the last couple years. The spiralling upsurge in cobalt prices between 2016 and 2018 was followed by a dramatic price collapse, cutting 70% off its value.

Strong projections showed that demand for lithium-ion batteries would grow as more and more electric vehicles hit the road. And it wasn’t long before more and more countries indicated that they were to ban traditional fossil-fuelled vehicles.

But the ‘blue gold’ bonanza didn’t last, as cobalt prices tumbled from record highs of nearly $45 per pound to $15.

So what happened? Few things, actually. Metal researchers say the biggest catalyst was triggered after the Democratic Republic of the Congo boosted supply. More than two-thirds of the world’s mined cobalt stems from the DRC. With strong EV forecasts, there was a veritable rush for miners to take advantage of high prices with a potential supply crunch not projected until 2023.

There are, however, two bullish catalysts still open for cobalt market. The first is the evident state of the DRC. When 66% of the world’s mined cobalt is being extracted inside a country with a huge potential for geopolitical volatility, one can see how quickly a crisis could spring up.

In August of 2019, the world’s largest cobalt producer, Glencore, announced it was placing its Mutanda mine on care and maintenance due to weak prices. Mutanda mine accounts for roughly 20% of global supply and is the world’s largest source for cobalt. That has given cobalt markets a little bit of reprieve, with cobalt prices rising approximately 33% since the announced shutdown.

The second bull revolves around how quickly the world makes its transition to electric vehicles.

The longer the outlook, the bigger the profit windfall will be for cobalt. Nearly every projection still calls for significant EV penetration into the auto sector.

BloombergNEF’s latest Electric Vehicle Outlook 2019 projects that by 2040, 57% of all passenger vehicle sales will be electric.

Although the analysts at Roskill are not expecting to see in 2020 anywhere near the same kind of price explosion as those between 2016 and 2018, the question now is whether the price reached the bottom. If so, there’s only one place for the price to go from here.