COBALT TOP PERFORMING 2017 COMMODITY FOLLOWING LITHIUM'S 2016 PERFORMANCE

Commodity producers are expected to enjoy a happy holiday this year as synchronized global growth supports robust industrial demand just as many commodities are coming to the end of their investment cycle in new output capacity.

While most commodities fared well through 2017, out-performers such as Cobalt were driven higher by a combination of strong demand and inflexible by-product supply

BEST PERFORMING COMMODITIES OF 2017

Cobalt: EV Excitement Electrifies Market for Battery Feed-stock
Cobalt rode the feverish buzz around electric vehicles (EVs) and growing concerns about future supply availability to the top spot among commodities in 2017, mirroring lithium’s 2016 gains on similar themes.

This recent spell of out-performance comes after a decade of chronic oversupply and meandering prices in the $12–20/lb range, but cobalt is making up for lost time and has more than doubled this year to $33/lb. Cobalt’s fortune has come on the back of positive sentiment, strong demand prospects, and inelastic, unresponsive supply.

On the demand side, the world is increasingly running on battery power and cobalt is a core feedstock for most battery chemistries; in fact, despite lithium’s stronger name association (i.e. “lithium-ion batteries”), cobalt is more leveraged toward energy storage demand—48% of cobalt ended up in battery packs vs only 34% of lithium last year.

The present excitement around electric vehicles is the perfect driver of a bull market for cobalt, with estimated future battery demand far outstripping current global production capacity, even under conservative adoption scenarios.

If this were the copper market (and copper will enjoy its own EV tailwinds), surging prices would prompt a commensurate scramble by global miners to supply more metal to the market and cash in on the windfall. Unfortunately, cobalt is not blessed with elastic supply. Cobalt’s seeming price disinterest stems from the metal’s by-product status, with virtually all cobalt supply sourced from copper and nickel mines. This by-product status helps explain why the market was able to remain in surplus for so long: low cobalt prices amid weak demand were unable to prompt any material supply rationalization when copper and nickel prices were soaring.

The reverse is true today: high cobalt prices aren’t going to bring more cobalt to the market, but higher copper and nickel prices likely will. The rally has also been fueled by the issue of cobalt’s political risk profile, which is strained. Geological history saw fit to concentrate roughly half of known cobalt reserves in the Democratic Republic of Congo (DRC), which suffers from a decades
-long civil conflict and ranks near the very bottom among the world’s countries on the UN’s Human Development Index. The DRC accounted for 63% of cobalt supply in 2016, almost twice the production share that OPEC collectively holds in the global oil market. Soaring prices have investors looking to invest in cobalt production in more stable regions, but it is very likely that the DRC will maintain its market share as mining firms continue to expand domestic copper production.