Why Cobalt Could Fire in the Months Ahead

Heard of cobalt?

It was a buzz word a few years ago.

A few savvy investors made a small fortune.

I recommended the base metal in March 2016, before people were talking about it. There were three cobalt stocks on the ASX. After I recommended it, people bought in, and the stock had quite a positive run.

But, that’s in the past. Things have changed.

Though now, given the current environment, we could be seeing another buying opportunity from cobalt.

I’ll explain…

History repeats

Remember, cobalt surged when civil unrest broke out in the Democratic Republic of Congo (DRC) in December 2016. The DRC is the world’s largest cobalt supplier. The country’s president, Joseph Kabila, refused to step down when he lost the election. Kabila hung onto power until the recent election on 30 December 2018.

I talked about the story in more detail last week, here.

BBC News summed the story up earlier this week:

‘Two African presidents have congratulated Democratic Republic of Congo opposition leader Felix Tshisekedi for winning last month’s presidential poll, despite the African Union saying it had “serious doubts” about the result.

‘The constitutional court ruled that Mr Tshisekedi had won after rejecting a challenge from rival Martin Fayulu.

‘He said Mr Tshisekedi made a deal with outgoing President Joseph Kabila.’

It’s a big story, as you can see. If the incoming President made a deal with Kabila, it means little policy change is likely and cobalt could skyrocket again.

Remember, ‘blue gold’ was originally a supply story.

It had nothing to do with demand!

Supply issues built because of poor policies in the DRC. It’s that simple. And these policies haven’t changed one bit. So, with supply issues lingering in the background, cobalt demand should be the focus.

Demand for cobalt is building

Mining Review Africa wrote on 8 January:

‘Global demand for cobalt is rocketing, with the rate of annual increase now at 8-10%. Due to its function in stabilising lithium batteries, the metallic element has become a vital raw material for electric car manufacturers, like Tesla and BMW, whose production is expanding rapidly year on year.’

As electric vehicles (EVs) and plug-in-hybrids (PHEVs) grow in popularity, it’s estimated that 120,000 tonnes of cobalt will be needed each year by 2030. That’s why the base metal has doubled in price since 2013.

At the Frankfurt auto show in September 2016, Volkswagen Group [DE:VOW] said it would spend €70 billion to build 300 electric car models by 2030. For that reason, it’s been trying to line up more than five years’ worth of cobalt supply for years.

From what we hear, the company hasn’t been successful.

Autoexpress reported on 28 December, 2018:

The Volkswagen Group (VAG) says it is aware of issues connected to “the production of certain raw materials”, and is in “continuous dialogue” with its battery suppliers. The group contractually requires suppliers to “prevent infringements of environmental and social standards”.

Producers haven’t been willing to lock-in long-term contracts in a rising price environment. If the supply can’t be found, Volkswagen Group’s expansion plans could be threatened.

It’s a problem.

Volkswagen Group is just one of many companies hungry for cobalt. Tesla Inc [NASDAQ:TSLA] boss, Elon Musk, is also losing his mind. He tweeted the following in mid-2018:


MoneyMorning 07-11-18

Source: Twitter

[Click to open in a new window]

Good luck with that!

The real story for cobalt

The Verge explained it best on 21 June:

‘Cobalt is the safe element in the cathode. As you reduce it, you reduce the life cycle of the cell. The current market standard for electric vehicles is an eight-year warranty to retain 80 percent of the original capacity of the battery. You need to be sure your battery can do that, otherwise, you’ll have to replace it under warranty, which is way more expensive than the theoretical savings you gain from less cobalt.

‘And there’s a safety issue as well. As you decrease the amount of cobalt, you increase the amount of nickel. The cells can overheat and it can no longer effectively cool itself, which can lead to combustion. That’s a relatively low risk but it’s not a risk that can be taken and you need special technology to avoid that. Plus, the low-cobalt formulations need to produce in special dry environments, and so there’s a cost to making them, too.

‘I think it’s very challenging from an engineering standpoint to solve these problems, so I think the current NCA technology is going to be the dominant technology for the next 10 years.’

I believe cobalt is here to stay…

The bottom line: Future demand for the strategic mineral appears strong and supply issues could resurface soon in the DRC.

Regards,

Jason Stevenson,
Resources Analyst, Markets & Money


Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money