COBALT: LESSONS FROM THE PAST FOR THIS
METAL OF THE FUTURE? With the promise of clean transport, electric vehicles (EVs) are grabbing the attention of the press, the public and financial investors, but this vision depends on manufacturers gaining reliable access to relatively rare commodities, notably Cobalt and Lithium.
These two metals, alongside manganese and nickel, are used to make several types of batteries used in mobile phones, laptops and electric + hybrid cars.
Lithium is not an exchange traded contract, so financial investors have focused on cobalt, despite modest trading volumes on the London Metal Exchange (LME) contract launched in 2010.
New LME contracts tend to get off to a slow start, with industry taking time to adopt a new pricing reference and speculators reluctant to get involved until trade activity and physical stocks build on the exchange.
Cobalt prices started to accelerate in early 2017, ahead of announcements in mid 2017, from a number of countries planning to ban new sales of petrol and diesel cars between 2025-2040, encouraging the auto industry to try to negotiate supply deals and driving prices higher.
There are a number of questions surrounding EVs, including limited range, lack of charging infrastructure and charging time, how the power stations are fuelled and continued use of diesel engines in trucks and buses. However, the political will is clear and prices are reacting.
Chart 1: Cobalt
COBALT HAS THE KEY INGREDIENTS FOR A BULL RUN: Concentrated Supply: approx. 70% of the world’s supply comes from the Democratic Republic of Congo, a region with a tortuous history of commodities related conflict stretching back to the time of King Leopold of Belgium
• Political uncertainty: President Joseph Kabila, who took over from his assassinated father Laurent in 2001, has stayed on despite his latest mandate expiring in 2016. The most recently promised election is in December 2018, although the current incumbent is promoting stability over the uncertainty of regime change, and there has been increased conflict in some regions
• Supply/Demand imbalance: Compared to current global production of 110k Mt/year, projections for EVs suggest demand may be 300k Mt/year by 2030
• Still Affordable: Cobalt is an essential part of the battery chemistry and, with usage per vehicle ranging from 10-20kgs (i.e. $800 to $1600/car basis $80k/Mt), it is still affordable in high end vehicles
• Tradeable: Cobalt is exchange traded, allowing investors to chart, monitor and market positions, although the small volumes make actual investing a challenge
These bullish factors remind us of another metal, palladium, which was caught up in an auto driven price spike 20 years ago. Back then, high platinum prices encouraged technological advances allowing palladium to be used in catalysts for diesel engines (although not petrol, where platinum was still used).
Source: Bloomberg
14 | ADMISI - The Ghost In The Machine | May/June 2018
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