By Karan Kumar – Exclusive to Cobalt Investing News
Cobalt prices have been losing strength this year due to an oversupply of the minor metal and an expected surplus from new projects scheduled to start production in 2012.
A London-based trader told Platts earlier this month that about 200 metric tons of cobalt had been offered on a long-term and spot basis in a two-day period. “It’s quite a lot of material,” the trader said, adding that everyone is trying to get ahead of the curve by liquidating stocks before new production hits the line. The trader said that while prices were high in January, driven by good demand from the superalloy sector and tight high-grade availability, prices have lost momentum. “We could be knocking on the door of a possible real rundown.”
Another industry source, who requested anonymity, told Cobalt Investing News in an interview that an oversupply of cobalt – which is primarily a by-product of nickel and copper mining – has come about due to “quite a few copper projects coming on board. Demand for cobalt has also increased, but there is also a lot of extra cobalt.”
London-based CRU said in a recent report that cobalt markets are going to continue to suffer from oversupply and weak prices this year and next. CRU’s report, quoted by Metal-Pages, said demand for cobalt will continue to rise at about seven percent year-on-year to over 100,000 tonnes by 2016, driven mainly by demand for chemicals for the battery industry and superalloys for aircraft engines. At the same time, cobalt production growth will be aggressive due to ambitious projects with production exceeding 100,000 tonnes annually coming online.
The market went into oversupply by 2,000 tonnes in 2011 and is expected to remain in this state, peaking this year at a potential 7,000 tonnes, and falling to over 3,000 tonnes in 2016. Prices are expected to remain under pressure and are forecast to average $13.50 a pound this year and $12.50 a pound in 2013.
China biggest exporter to United States
Lara Smith, Managing Director of Core Consultants, a mining advisory firm, said the cobalt industry is quite volatile. “From that perspective, it does not take much to send the market into oversupply,” she told Cobalt Investing News in an interview. “China represents the largest exporter of cobalt to the United States. There is the growing threat that as China accounts for the lion’s share of cobalt refinement and indeed leads the supply of cobalt imports to the United States, that China could restrict exports of cobalt as they have done with numerous other commodities. This could lead to greater price volatility and increased price disruption. Overall we are bullish on this sector as we see continued demand for cobalt.”
The Democratic Republic of the Congo supplies nearly two thirds of the world’s cobalt, most of which is refined in China. “You end up with this triangle of Africa, China, and the world,” Smith said, adding that more cobalt miners are needed to cut price volatility and supply disruption in the market.
New supply coming on board
The availability of refined cobalt was twelve percent higher in the first half of 2011 compared with the same period a year ago, the US Geological Survey reported recently. “In the next few years, global increases in supply from existing producers and new projects are forecast to outpace increases in consumption. If an oversupply of cobalt takes place, it could lead to a downward trend in prices,” the report said.
Canada’s Formation Metals Inc. (TSX:FCO,OTC Pink:FMEWF,FWB:FOQ1) plans to start production later this year at its Idaho Cobalt Project, which is located in East Central Idaho and has production estimates of 1,525 tons of superalloy-grade, high-purity cobalt metal annually over a minimum ten-year mine life. The project’s output will be equivalent to 3.3 percent of global cobalt supply and will be able to feed nearly 15 percent of North America’s cobalt demand.
Puget Ventures Inc. (TSX:PVS,FWB:3P0) has a project at Werner Lake in Northwestern Ontario which it says has a near-term production focus. In December 2010, the company signed a deal to raise C$20 million to develop a Russian asset that has the potential to be the world’s largest non-African primary cobalt deposit.
Securities Disclosure: I, Karan Kumar, hold no direct investment interest in any company mentioned in this article.