For Caspar Rawles of Benchmark Mineral Intelligence, the key challenge for the cobalt supply chain can be summed up with one word — uncertainty.
Countries around the world continue to fight the spread of the novel coronavirus, with supply chains for most commodities being tested at multiple levels.
Battery metal cobalt has seen numerous supply chain challenges, but for Benchmark Mineral Intelligence Head of Price Assessment Caspar Rawles, the key issue can be summed up with one word — uncertainty.
“The world is going through an unprecedented situation with an unknown timeline of direct impact (i.e. closures/lockdowns/demand loss) through the peak of the pandemic, and the following recovery period,” Rawles told the Investing News Network.
In its Q1 forecast, published at the end of March, Benchmark Mineral Intelligence downgraded both its supply and demand outlooks for cobalt in 2020. Demand is now expected to fall 8.6 percent.
“The situation is evolving, so we may see further decline depending on how long the impact of the virus is felt,” Rawles explained.
Meanwhile, the market has seen disruptions to production and supply chains around the world. In the Democratic Republic of Congo (DRC), a top-producing country, Chemaf announced the closure of the Usoke and Mutoshi mines, and the company has also halted construction of the Mutoshi refinery.
Outside of the DRC, closures and output suspensions have happened at CTT in Morocco, Ambatovy in Madagascar and Voisey’s Bay in Canada. On top of these, disruptions in the Philippines and Papua New Guinea have also raised concerns over production.
As a result, at this point cobalt supply is expected to fall by 7 percent in 2020 — but this is still a moving target as the impact of government lockdowns continues to hinder production, Rawles said.
For the analyst, ultimately the impacts of uncertainty are likely to last into Q2 and beyond.
“This will stifle investments at a time when the supply chain is dependent upon them to function,” Rawles said. “A perfect example of this is Chemaf ceasing construction at the Mutoshi refinery — one of the key projects the industry has looked to for incremental tonnages of feedstock for the battery industry.”
Looking further into the supply side of the cobalt market, uncertainty around logistics, particularly in South Africa, has created big problems. Cobalt mined in the mostly landlocked DRC is shipped through South African ports, but the country has been in a now-extended lockdown since March 26.
“(Logistics issues) have fortunately had a limited impact so far due to muted demand, but this status quo is unlikely to last much longer,” Rawles said.
Moving into Q2, Benchmark Mineral Intelligence expects to see the real impact of the virus begin to hit markets outside of China, particularly auto demand in Europe and North America.
“Some of the demand loss will hopefully be offset by the Chinese market moving into recovery and activity picking up there, although this is yet to materialize so far,” Rawles said, adding that he expects to see some signs of recovery in the Asian country before the end of the quarter.
Despite the supply-side issues the market has faced, Rawles said a shortage of cobalt is possible, but likely temporary — and if it does happen, it would be a shortage of cobalt hydroxide going into the Chinese market.
“For the squeeze to occur it really depends how long it takes for demand in China to recover. Ultimately there still remain stocks in China which can be consumed that will cover the near-term depressed demand,” he said.
If lockdowns impacting the DRC supply chain are extended and demand increases at a faster pace, a temporary squeeze could take place — although this would be resolved when normal logistics return.
“It is key to remember very little cobalt will have been shipped to China throughout April, which won’t be fully realized until May/June due to the transport time lags. Time will tell if on-hand stocks/demand can balance before more material is shipped,” he explained.
Commenting on whether a price recovery for cobalt is in the cards in the near future, Rawles said it depends on a huge number of factors
“(But) I think for some products in the supply chain we will see some form of price recovery this year, although don’t expect this until into H2, so we have some time to go yet,” he said. “This really depends on the shape of the recovery curve.”
Companies operating in the space have had a tough time, with the coronavirus bringing even more volatility to the space.
Rawles said with the pandemic, most cobalt-focused companies have faced similar challenges, which include a breakdown of demand and supply chains, and uncertainty going forward, which makes planning for the future very hard.
“We have seen a lot of companies in the supply chain take a ‘wait-and-see’ approach, which means everything is on hold,” he said. ”I guess one of the major challenges of this is can these companies weather the storm financially?”
As with other metals, one of the main developments to keep an eye on in Q2 is the speed of recovery in China, as well as any further mine closures or lockdowns — for cobalt, particularly in the DRC and Africa.
The ongoing impact to aviation and the aerospace and auto industries will also be key for the cobalt market, Rawles said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
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