Last week, the price of cobalt spiked 12% within three days.
The price movement was triggered by the discovery of uranium in the cobalt extracted from the Kamoto mine in the Democratic Republic of Congo (DRC).
As a result of the discovery, Katanga Mining Ltd [TSE:KAT] which operates the Kamoto mine, temporarily halted sales of 1472 tonnes of cobalt, driving prices upwards.
The real story here is that although the DRC accounts for roughly 58% of the world’s cobalt production, supply chain issues in the DRC could benefit Australian cobalt miners.
Demand for cobalt will grow, DRC supply chain faces hurdles
Cobalt has been one of the resource success stories of the last few years.
Prices of the resource took off towards the end of 2016 rising more than 400% in the space of a year and a half:
This growth was underpinned by growing demand for lithium-ion batteries, which require cobalt in their manufacturing process.
Electric vehicles (EVs) and consumer electronics make up a large portion of the lithium-ion battery market and will be driving near exponential demand until 2030 and beyond:
Indeed, global cobalt demand has increased by about 4% every year since 2010.
But as we have discussed previously, the DRC is an unstable environment for cobalt miners.
The government is currently proposing new taxes, and the state-run miner has floated the idea of nationalising resources, including cobalt.
The former is a very real but minor risk to cobalt supply, while the latter is a speculative though existential risk to the future of cobalt mining companies in the DRC.
If cobalt resources were to be nationalised, Australian cobalt miners would look to pick up the slack.
Short-term oversupply of cobalt, window of opportunity
As the price of cobalt spiked over the past two years, the industry became significantly more profitable and miners moved to increase supply.
As a result, cobalt prices have been falling since March.
This trend may well continue for the next 12 months as according to Macquarie analyst Vivienne Lloyd:
‘The market will still be oversupplied next year as they are planning to make up sales in the second half and there are many others selling cobalt hydroxide.’
Another analyst, Colin Hamilton of BMO Capital Markets, agrees saying that:
‘We had been forecasting the largest cobalt surplus on record for 2019, albeit in a market with 13 percent consumption growth.’
He continues by suggesting that the next eight months could however see an upswing in price:
‘Taking out the planned 30,000 tonnes of mine supply from Kamoto, however, leaves first half 2019 in the largest deficit on record. But should Kamoto play catch-up in the second half, we would have an aggressive swing to surplus.’
With this in mind, a short-term movement in Australian cobalt miners could transpire.
One such miner, Clean TeQ Holdings Ltd [ASX:CLQ] is looking particularly cheap at the moment:
Of course this is just an idea, and we will wait to see where the cobalt price heads in the next few months, but keep your eyes peeled for future developments.
For Markets & Money