Cobalt
What's Next?
January 2020
The outlook for the supply/demand balance in 2020 is looking far better than it has previously, which has given producers a stronger hand in negations with consumers.

On the other hand, China, where the largest buyers and refiners of cobalt are located, has seen struggling EV sales following the EV subsidy reduction, which came into effect in June, as well as a weakening economy due to macroeconomic factors. As a result, the cobalt market may still see some marginal price decreases between now and early 2020, but nothing like the low levels that were seen earlier in 2019.

The cobalt price has recovered slightly in Q4 2019, from the low of US$25,580/t seen at the end of Q3 2019, on the back of an announcement from Glencore that it would curtail production from Mutanda in the Democratic Republic of Congo (DRC) in order to address current oversupply in the market. The price finished the quarter at around US$32,500/t and averaged US$34,840/t for the quarter. At the low point, a significant proportion of mine production would have been uneconomic if those prices were sustained.

Glencore has closed its largest copper-cobalt mine in the DRC—Mutanda—which was the largest source of mined cobalt in the world. The company has revised its output of cobalt down to 25,000-33,000t in 2020 from 43,000-47,000t in 2019. Eurasian Resources Group's new Metalkol RTR project in the DRC could potentially fill the hole left by Mutanda. It was expected to produce around 8,000t in 2019 and ramp up to around 14,000t in 2020, but Metalkol has hit significant delays. Problems with impurities in output and falling prices have hindered Metalkol's ramp up in operations.

This comes as spot demand from Chinese companies in in the short term is expected to increase compared with last year. Investments in electric vehicle (EV) infrastructure will continue to support demand for cobalt over the next twelve months. US EV maker Tesla opened its third Gigafactory in Shanghai in early December. Both the US and EU have placed cobalt on their critical minerals lists and are now looking to the Canadian government and its mining industry to diversify cobalt mine production away from not just the DRC, but also China, which controls approximately 60% of the refined cobalt capacity.

Two potential market forces may improve the outlook for cobalt prices. The Chinese auto market has been falling for over 12 months and that is likely to be creating pent-up demand, which is likely to target EVs to a large extent once consumers return to the market. And, European manufacturers are likely to dip further into EVs in an effort to help them meet the CO2 targets mandated by the EU for their overall fleet emissions.