Battery Metals

Cobalt Investing

For Roskill’s Jake Fraser, softer EV demand and ample industry production capacity at present will keep cobalt sulfate prices relatively flat.

The first few months of 2020 were unpredictable for commodities, including cobalt, where the impact of the coronavirus pandemic has been felt far and wide for miners.

“But so far it has been mostly ex-Democratic Republic of Congo (DRC) producers feeling the brunt of the virus’ effect on production, with forced shutdowns taking place throughout Canada, Africa and Indonesia,” Jake Fraser of Roskill told the Investing News Network.

The firm has so far recorded closures or scale backs at 21 operations as a result of the outbreak; that represents US$48 million of lost cobalt production value over Q1 and Q2 to date.

Around 44 percent of this is being attributed to Vale’s (NYSE:VALE) Voisey’s Bay operation, which is now planned to be offline for up to three months.

Within the DRC, the world’s top cobalt-producing country, the main issues at present are by far logistics and border control points.

“Usual shipping ports in South Africa have now had to be diverted to neighboring ports such as Maputo in Mozambique or Dar es Salaam in Tanzania,” Fraser explained.

But a shortage in the cobalt space is not yet on the horizon, as prior to COVID-19 the market was already sufficiently supplied and had built up a sizeable volume of intermediate stocks, specifically within China.

Roskill estimates between that 15,000 and 20,000 tonnes of cobalt in hydroxide are tied up at both refineries and ports, which equates to US$600 million of metal value in stocks, representing approximately 13 percent of mine output in 2019.

“At current production levels this level of stocks could sustain refinery feedstock needs for a minimum of two to three months, with a tightening of intermediate supply expected sometime in Q3/Q4,” Fraser said. “Naturally, this is predicated on refinery production rates, which could be lower than levels prior to COVID-19, and so the stocks could last longer.”

Looking over to demand, buying from end-use markets has largely been hit by a slowdown in the need for cobalt sulfate required in lithium-ion battery manufacturing. Fraser said that is due to decreased electric vehicle (EV) sales domestically within China in Q1, coupled with automakers shutting or slowing down production lines as a result of COVID-19.

“With EVs remaining the growth driver of the cobalt market, a speedy uptick in EV sales in Q2 is considered unlikely,” he said. “This comes following the uncertainty that surrounds quantifying the impact the virus will have on consumer disposable income levels globally.”

However, Fraser added that OEMs are expected to have restarted most production lines by mid-year, so there could be some variance between lead and end-use demand in the market.

Speaking about what the market could see in terms of prices, Fraser said cobalt sulfate prices are forecast to remain relatively flat over the course of 2020. That’s due to softer EV demand and ample industry production capacity at present.

For Fraser, the key theme to play out in the months ahead will be China’s refineries and whether production levels will return to pre-coronavirus norms.

“This in turn will have run-on effects for the timing of forecast tightness for both mine and hydroxide intermediate balances,” he said. “Hence, metal prices could have the highest potential for an uptick before year end, dependent on what plays out in the DRC.”

Roskill also expects to see fluctuation in hydroxide payabilities of between 62 and 68 percent, in line with what’s taken place in recent months; it’s unlikely payabilities would creep higher than 70 percent.

Looking ahead, all eyes will remain on the DRC to see the scale of the virus’ impact on mine output.

“This will be the swing factor in how quick the cobalt market will return to balance following a period of mine and feedstock oversupply,” he said.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.



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