We turned bullish on cobalt before most others in June 2016:
‘Though it has been a terrible couple of years for cobalt, the spot price has shown signs of moving higher.
‘While it could be in the early stages now, you want to see cobalt jump to about US$12 per pound. This should get the market excited, believing that significantly higher prices are ahead. If that happens, as I predict, the price will keep heading up from there, generating more excitement, and seeing more investors pour money into cobalt stocks.
‘With companies like Tesla building lithium-ion battery mega-factories, which will require significant amounts of cobalt, the future of some cobalt-producing companies is looking bright.
‘If cobalt starts to take off, the best miners could make you a truckload of money.’
It took six months for cobalt to break out.
The base metal surged when civil unrest broke out in the Democratic Republic of Congo — the world’s largest cobalt supplier — last December. The country’s president, Joseph Kabila, refused to step down when his constitutional mandate expired.
Cobalt on track for another run
You can see this on the chart below:
[Click to enlarge]
Technically, cobalt is now breaking out to higher prices. The blue line shows support from the December 2016 low. The red line shows resistance from the June 2017 high. Resistance failed to support prices. Our first target stood at US$33 per pound, which has been hit. If that level breaks on a monthly basis, the base metal could retest US$51 per pound — the all-time high — next year.
To understand why this could happen, turn to News24. It reported on 21 November:
‘Influential bishops in the Democratic Republic of Congo on Monday urged President Joseph Kabila to pledge he will not seek a third term in office in order to ease fears of unrest.
‘Roman Catholic bishops last year helped broker a deal under which elections for a new president would be held in 2017.
‘However, the ballot has been delayed, with the country’s electoral commission blaming logistical problems.
‘Under international pressure, the mineral-rich but chronically poor and politically unstable country has now scheduled the vote for December 23 2018.’
Election delays have pushed the base metal higher this year. And, given the president won’t step down or hold elections for another year, it could fly even higher next year. That’s mainly due to supply issues building in the country.
Bloomberg reported on 27 November:
‘An attempt by Congo’s Gecamines to profit from the boom in battery metals has backfired, leaving the state-owned miner facing two international court actions and halting cobalt production at a key mine.
‘Congo supplies about two-thirds of the world’s cobalt, of which as much as 5,000 metric tons a year, or 4 percent of global supply, was produced by GTL.
‘Glencore Plc, the world’s largest cobalt miner, has bought GTL’s output since 2015.’
Glencore plc [LON:GLEN] will probably need to source its cobalt from somewhere else. But who can fill the gap? 4% of world supply might not seem like much. But when you consider rising demand for electric-vehicle (EV) batteries, the equation changes.
Wood Mackenzie, a mining research and consultancy group, expects cobalt demand for EV batteries to grow fourfold by 2020.
Its forecast might not be too far off.
At the International Motor Show in Frankfurt in September, Volkswagen Group [DE:VOW] said it would spend €70 billion to build 300 EV models by 2030. For that reason, it’s been trying to line up more than five years’ worth of cobalt supply for months.
The company hasn’t been successful.
Producers aren’t willing to lock-in long-term contracts in an environment with rising prices. If the supply can’t be found, Volkswagen Group’s expansion plans could be threatened.
It’s a problem.
Cobalt’s projected demand growth
Volkswagen Group is one of many companies hungry for cobalt.
CRU Group, a global commodities consultancy firm, expects lithium-ion batteries to consume around 55% of total cobalt demand by 2019. This number stands at 42% today. Here’s cobalt’s projected demand growth:
[Click to enlarge]
Future demand for the strategic mineral appears strong. Too strong, in fact, for the current supply pipeline. While that may pose a problem for battery producers, their problem is your opportunity. This sector could be about to explode yet again.
Editor, Gold Stock Trader