Investors’ interest in cobalt has been piqued in particular since Tesla Motors (NASDAQ:TSLA) CEO Elon Musk announced plans in early 2014 to build a $5-billion lithium-ion battery gigafactory. Market watchers immediately began predicting how much lithium, cobalt and graphite the facility might require, and that speculation has only continued as Tesla has taken further steps, such as releasing a much-anticipated suite of rechargeable batteries.
Benchmark Mineral Intelligence has predicted that if the gigafactory reaches its target capacity of 35 GWh by 2020, it will require 25,000 tonnes of lithium, 112,500 tonnes of flake graphite, 45,000 tonnes of spherical graphite and 7,000 tonnes of cobalt. In 2014, global cobalt production was just 40,000 tonnes.
It’s also worth noting that Tesla isn’t the only company with a lithium-ion battery megafactory in the works. LG Chem (KRX:051910), FoxConn Technology (TPE:2354), BYD (HKEX:1211) and Boston Power are also planning facilities of their own.
Furthemore, it’s important to be aware that cobalt isn’t only used in batteries. Its ability to withstand high temperatures and its good resistance to oxidation make it an essential alloying element for superalloys, which are used for casting airfoils and other structural parts of jet engines. The metal is also essential for human and animal metabolism, and those who can’t naturally retain cobalt have to be treated with B12 vitamin therapy.
All in all, cobalt demand certainly seems set to rise significantly in the coming years, and in that context it’s interesting to look at where it comes from. The Democratic Republic of the Congo was by far the biggest producer in 2014, putting out 56,000 MT. China, which produced 7,200 MT, and Canada, whose production totaled 7,000 MT, were a far-away second and third.
However, it’s possible that other countries may come to the fore in the future. Tesla has said it intends to source the metals it requires from North America, meaning that Canada and perhaps the US, which produced no cobalt in 2014, may record higher output. Commenting on that possibility, Chris Berry of House Mountain Partners and the Disruptive Discoveries Journal said, “they’re going to have to find a lot more cobalt and it’s going to have to come from a much more reliable source.”
One potential issue for companies looking to mine cobalt is that though it is globally quite widespread, forming 0.0029 percent of the Earth’s crust, it is rarely found on its own. In other words, it is found in low concentrations, and is mainly found as a by-product of nickel and copper. That means cobalt production can be dependent on production of those and other metals.
If demand does rise as much as some analysts are predicting, the cobalt price is bound to see some positive action. That said, the metal’s prospects in general aren’t looking bad. At the beginning of 2015, some market participants were calling for a deficit, having seen generally higher prices in 2014 than in 2013.