April 15, 2015
Chris Berry on Cobalt: The Great Enabler in the Battery Race
Chris Berry writes:
With an increasing amount of attention focused on metals used in batteries, several issues have become clear. First, the metals used and resulting chemistries are all over the map implying there is no clear winner. Second, the amount of a metal used in a battery isn't as important as is the cost to procure it. Third, a general lack of transparency in pricing clouds the overall potential opportunities.
Given these challenges, it's a wonder anyone would care at all about the Energy Metals, but it has become increasingly clear that the demand is there. One metal in particular which offers interesting answers to the above issues and deserves more careful study is cobalt.
The USGS puts the total mined production for cobalt at 112,000 tonnes (though refined cobalt production is lower). However, there are numerous downstream cobalt compounds including chlorides, carbonates, and powders used in various applications. This diversity of demand is very important as the metals markets struggle with oversupply. With the overall market demand for cobalt growing at an estimated 6 to 7% per annum, driven primarily by the battery business which uses cobalt chemicals and the aerospace business which uses high purity alloys, the demand story is sound.
The supply side is more of an open question, but industry sources have indicated that the oversupply that is plaguing many of the metals also exists in cobalt. The key question here then is when will the balance tip and a new equilibrium emerge? The current cobalt price would seem to reinforce the oversupply thesis and my own estimates indicate that prices will remain range bound in the intermediate future. That said, one of the real keys to analyzing the cobalt market involves not looking at the metal itself, but other external factors which can influence price and therefore usage. It's no secret that cobalt is, by and large, a byproduct. Approximately two thirds of cobalt production is directly related to copper production, slightly less than one third is related to nickel production, and the remainder (less than 5%) is the result of primary cobalt operations. Given that reality, it seems that both positive and negative catalysts for the copper and nickel markets should be more scrutinized than those only in the cobalt space. As an example, forecasts of slight oversupply in copper heading in to the second half of this year will weigh on cobalt pricing.
Additionally, with the battery business such a large and growing source of demand for cobalt chemicals, particular attention should be paid to Asia-based battery manufacturers such as LG Chem, Sony, Panasonic and GS Yuasa to name a few. These are among the companies who collectively promise to determine the future trajectory of metals demand, in particular for cobalt. In short, Tesla isn't the only game in town. This was reinforced by an exceptional article on Bloomberg
yesterday which focused on several smaller aspirants in the battery race. Though cobalt wasn't explicitly discussed, the article reinforced the fact that there are multiple chemistries and players in the battery space. This healthy competition can only help lower costs in what is currently a $50 billion per year industry and growing.
Much of cobalt's appeal concerns the perceived need for a reliable source and supply chain as roughly 50% of global mined production comes from the DRC and the lion's share of refined cobalt comes from China. The real opportunity in cobalt lies in the lack of a longer-term pipeline of projects that can fill any supply gap in several years time....To read the full editorial on the InvestorIntel website please click here
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News Release:April 20th, 2015, Strength Remains in Cobalt Market on Anticipation of Supply-Driven Tightness