Cobalt price gains begin, H2 surge likely

Tightening supply and growing demand has finally sparked the beginning of a recovery in cobalt prices which is likely to escalate throughout H2 2016.

Increases of between $0.5-$1.5/lb have been reported across the market, led by price hikes in China at the start of the August as suppliers scaled down their efforts to destock.

This tightening in supplies has been met by heightened interest in the market as a result of growing demand from the lithium ion battery sector, seeing greater speculative buying in the market and a willingness from suppliers to retain stocks ahead of what some believe could lead to price increases of up to 40% by the end of the year.

Industry sources have told Benchmark that price increases for cobalt chemicals used in the burgeoning battery sector have been even more extreme than their metal equivalents.

Although demand from the battery sector is yet to reach its period of significant growth – expected to be brought about by increased adoption of EVs from 2017 onwards – a robust demand outlook has begun to expose a tighter supply structure than many had suggested.

With the difficulty copper and nickel miners have experienced over the past 12-18 months, the majors have focussed attention on reducing production at a time when significant new volumes of cobalt as a by-product are likely to be required.

In addition, the Chinese State Bureau of Material Reserves (SRB) has increased it’s stockpiling efforts since the start of 2015 and this is now limiting physical availability on the market.

This longer-term trend alongside a more recent crackdown by Chinese authorities on environmental pollution from domestic refiners ahead of September’s G20 summit, has limited available volumes on the spot market.

These supply side developments were met by unseasonally strong orders from the superalloy sector over the summer months, exposing a shortfall of material available on the open market.

With the longer-term demand driver – the battery sector – only starting it’s shift from megawatt to gigawatt-scale production, the race is on for cobalt suppliers to rise to the challenge of nurturing this demand.

Consumption is likely to escalate from 2017 onwards and few near-term sources of new supply, the price recovery seen in recent weeks is likely to be little more than a warning shot.

The real growth is yet to come.

 

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