If you want to teach someone the boom-bust nature of the mineral commodity
industry, the story of cobalt over the last few years would be a perfect
example. The metal, which is used in lithium-ion batteries to stabilize them,
recorded several years of rising prices until last year it began to slide
down eventually hitting multi-year lows. How did this happen?
The answer is easy enough since it follows the classic industry price
pattern, as detailed
by Bloomberg’s Mark Burton. The EV hype that unlike so many other hypes
actually transformed into a real race to bring more electric vehicles to the
market sparked a cobalt mining frenzy that boosted supply more quickly than
the EV revolution took off. This revolution, by the way, still hasn’t taken
off and is shaping up to be more of an evolution than revolution: a fact
that’s added its own weight to cobalt prices.
After an early 2018 cobalt hit a 10-year
high trading at an average of US$100,000 per ton in the first half of the
year, between last November and this February, the metal dropped 40
percent. Now, it is trading at barely above US$30,000 per ton. The bust
has come, brought about by a rush to mine as much cobalt as possible and sell
it to the Chinese: China accounts for 65
percent of the world’s lithium-ion megafactory capacity.
So, one reason was the EV rush. Another, however, had to do with where
cobalt is most abundant. That’s the Democratic Republic of Congo and its
notorious political instability has served as another booster for the price
of the metal.
There is also one more rather unique factor that has contributed to the
rout: artisanal cobalt mining in DRC. People there are literally mining
cobalt in their backyards. That’s a dangerous endeavor in the absence of
specialist mining equipment and protective gear but the practice has proved
unstoppable.
The fact a single country—China—is home to more than 50 percent of battery
production capacity helped as well. Cobalt just became one more metal whose
price fluctuates every time China releases economic data. Related:
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What’s more, there was a hoarding element to cobalt’s rise to prominence.
Benchmark Minerals’ cobalt expert Caspar Rawles explains, as quoted
by Edward Niedermeyer in a story for The Drive, “The Chinese were also buying
more than they needed because they were stockpiling it and it was going up in
value every month so they were making paper profits... which ended up being
part of their undoing in 2018."
Even so, the rout now seems to be over. Prices have bottomed out and
analysts expect them to start climbing up again as demand remains strong.
That’s the good thing—or bad thing, depending on perspective—about
fundamentals. If these are strong, any price crash would be a temporary
headache. With weak fundamentals, we get the new normal in oil prices.
Yet cobalt has strong fundamentals: demand will remain robust as the EV
industry gathers pace, albeit more slowly than initially expected. Government
regulations, notably in China but also in other countries, will serve as a
major boost for electric car adoption and whatever boosts EVs will boost
battery metals.
The cobalt market is already self-regulating. Artisanal mining in Congo
has declined along with prices, so there is less supply coming into the
market. At the same time, carmakers are pushing ahead with their ambitious EV
plans. Whether these will unfold as they expect remains to be seen, but
cobalt will continue to be in demand, even if this demand grows more slowly
than optimists expected at the height of the EV hype.
By Irina Slav for Oilprice.com
