Mined cobalt supply expected to increase significantly through to the 2020s, with a growing concentration of single-country risk.
Cobalt production has been coming under increasing scrutiny over the past year, with increased focus on electrical powertrains in consumer vehicles. This year has been a big one for the electric vehicle industry, with Volvo announcing that all new models from 2019 will utilize an electric motor, France announcing that the sale of petrol or diesel cars will be banned from 2040, and, in the U.K., the announcement of a ban on the sale of new petrol and diesel cars, again from 2040. A number of announcements in the subsequent months confirmed that many other vehicle manufactures, from Volkswagen (VW) to Mercedes, are jumping into the fully electric or hybrid business, alongside vacuum cleaner and hairdryer manufacturer, Dyson.
Cobalt is a key commodity in this electrical revolution, with production mainly sourced from primary nickel or copper mines. Over 88% of mined output is sourced from nickel and copper mining, with the remainder coming from primary cobalt operations. Within this figure, the copper-cobalt sector holds the lion’s share, at over 50% of global output, with most coming from the Copper Belt in the Democratic Republic of the Congo. Geographically diverse nickel mines provide about 37% of cobalt supply.
Cobalt output has grown almost continuously since 2000, with only intermittent interruptions. Output has risen rapidly since 2002-2003, when political stability began to improve in the DRC, which has since overtaken all other competitors by a significant margin. The largest producers of cobalt from the Copper Belt area are Mutanda (Glencore) and Tenke Fungurume (China Molybdenum) — they alone are responsible for almost 35% of global production.
With such a concentration of copper cobalt resources and mining operations, the DRC is consequently well represented in the top ten producing assets list, with six of the top ten in 2016. This is expected to rise by 2022, with nine of the top ten producing operations in the DRC, due to the addition of new operations. This would leave only one primary nickel operation among the top ten. With the exception of Mutanda and Tenke Fungurume, no operations within the top ten are expected to reduce production in the period. Indeed, by 2022 the top ten producers are expected to be producing more than the global total last year, and almost double the amount of their peers in 2016.
Mined output in 2017 has risen from the prior year — we expect full year output to be recorded at approximately 131,000 tonnes, an almost 7% increase. Any previous expectations for flat or minimal growth in the marketplace has not been borne out on mid-year reporting due to significantly improved market conditions. From late 2016 through to mid-2017, cobalt prices rose rapidly to over double the long term average from between US$20,000-30,000/t to over US$60,000/t in 2017.
This sudden increase in price was likely to be driven by heightened awareness of the coming importance of cobalt and associated speculative purchasing. There was no sudden change in the market to drive such a sharp increase in cobalt prices. However, cobalt demand will increase due to electrical vehicle demand placing more pressure on cobalt prices. VW has attempted to tender for cobalt supply at fixed terms for a five-year period. However this attempt has failed, as the prices put forward by VW were below the price levels at that time.
Chinese demand for copper will not be likely to show significant changes in the short term with mixed macroeconomic signals from China. Though continued Chinese demand will exert positive pressure on the copper cobalt industry, it is noted that the increased prices in the market cannot be attributed to demand and that there is a degree of speculative pressure in the copper market.
With such heavy market expectations around demand, if producers’ plans all come to fruition then we expect cobalt supply through to 2022 will grow significantly. This includes the recommencement of production from Glencore’s Kamoto project in 2018, the commissioning of Zijin Mining Group’s Kolwezi project and ERG’s Metalkol RTR (Roan Tailings Retreatment). These significant increases in production are centered on the Copperbelt Region in the DRC.
Other projects in the region likely to restart or commence include Musonoi (Jinchuan Group International Resources Group Ltd.), Pumpi (Managem S.A. and Wanbao Mining) in the DRC, Glencore’s Mopani in Zambia, where a cobalt plant is undergoing an upgrade at the associated Nkana plant to produce cobalt hydroxide and expanded electrowon cobalt capacity, and Norilsk’s Maslovskoe. Combined these properties will add just short of another 10% of cobalt supply between 2018 and 2022, based on 2016 production levels.
Source: S&P Global Market Intelligence