Cobalt

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Before we head into the weekend, let’s take a look back at the week that was.

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Industrial metals are in the grips of a bear market, various outlets report, and one of the main narratives sounds like a case of the market having its cake and eating it too.

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The FT reports that the oil price, as referenced by the Brent crude quotation, has topped $60 a barrel for the first time in two years.

The article quotes various sources suggesting that while demand is strong, the rise in prices is driven more by supply constraints than by a sudden surge in demand (which caused the China-inspired super-cycle in the last decade). This time, a combination of reduced investment in new capacity (resulting from low prices in recent years) and the OPEC-led production constraints initiated in November 2016 are gradually tightening the market. Trader Trafigura is quoted as predicting demand will outstrip supply by as much as 4 million barrels a day by the end of the decade as supply becomes under better control and the U.S. shale industry fails to make up the delta between supply and gradually rising demand.

That’s where the have the cake and eat it too part comes in.

At the same time, industrial metals are rising strongly. Copper passed $7,000 per ton last month and aluminum is knocking on the door of $2,200 per ton. The cobalt price has doubled in the last 18 months and nickel, long in the doldrums due to over-supply and poor demand from the stainless sector, has also been on the rise due to projected battery demand from electric vehicles and charging infrastructure.

On the face of it, this appears like investors are picking and choosing their good news. If electric vehicles are such a strong bet that metals demand is set to soar, then surely oil demand is set to collapse. That prospect should undermine the oil price, you may reasonably suggest.

If only it were that simple.

Even a doubling of battery production would suggest an extra 750,000 vehicles based on 2016 global electric vehicle and hybrid production of 773,600 units, according to EV-volumes.

There was modest, by global light vehicle sales, of 90 million units in 2016, just 0.86%. Yet for cobalt, it’s still significant when you consider the battery industry currently uses 42% of global cobalt production, so an ongoing rise of 42% increase in lithium ion battery demand (2016 over 2015) would be highly disruptive to cobalt demand.

Plug-in vehicle sales grew 20 times faster than the overall market, justifiably causing concern that cobalt supply could be strained by this one market application.

Worryingly for cobalt, the fastest-growing market is also the largest.

Driven by government subsidies, the Chinese market, at some 351,000 units last year, also grew at 84% over 2015. The switch to EV and PHEV cars is part of Beijing’s drive against pollution, so incentives are not likely to be relaxed anytime soon. Growth of this magnitude dwarfs the 13% and 36% growth rates in Europe and the U.S., respectively.

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No wonder cobalt prices have doubled and yet oil prices have virtually ignored the message the rise in EV sales is telling us. One is major disruption to a small, constrained and geographically, supply market, while the other is a long-term trend to a still growing vast supply and demand market that will take years to impact consumption figures.

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This morning in metals news, August was a huge month for aluminum, zinc, and nickel; copper hit a three-year high on Thursday; and a South Korean company announced it will produce lithium-ion batteries with a greater percentage of nickel than before.

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An Anything But Dreary Month

August is typically a quiet month for many, as people take vacations before the end of the summer.

It was not a quiet month for metals, though.

In August, aluminum, zinc and nickel all posted significant price increases (10%, 12% and 15%, respectively).

Copper Hits Three-Year High

Copper kept rolling Thursday, hitting a peak not seen since 2014.

The metal thus closes a strong August  — during which its price rose 7.5% — on a record note.

From Cobalt to Nickel

As automakers look to meet growing demand for electric vehicles, some battery makers are turning to more nickel and less cobalt in the construction of lithium-ion batteries.

For South Korean company SK Innovation, that means using more nickel. The company announced Thursday that it has begun commercial production of batteries using an increased portion of nickel (as opposed to the expensive, and scarce, cobalt).

“The batteries will help extend a driving range of electric vehicles up to 500 kms, and we will also develop new batteries by 2020 that can provide a range of more than 700 kms,” Lee Jon-ha, principal researcher of the company’s battery R&D center, said in a statement quoted by Reuters.

Free Download: The August 2017 MMI Report

The Renewables MMI jumped 6.9% to 77 for our August reading, as prices jumped for nearly every metal in the renewables basket sub-index.

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Of eight metals listed in this sub-index, seven posted price jumps last month. Steel plate from Japan, Korea, China and the U.S. jumped up, as did Chinese neodymium, silicon and cobalt.

The lone metal to fall this past month was U.S. grain-oriented electrical steel (GOES) coil, which fell  2.8%.

It was a much stronger July for this basket of metals than June was, when only four of the seven metals moved up in price (Chinese steel plate, neodymium, cobalt cathodes and silicon).

Cobalt Prices Have Asian Battery Makers Looking Elsewhere

As mentioned earlier this week, Reuters reported rising cobalt prices have forced battery makers in Asia to consider alternatives — namely, nickel.

According to the report, makers of lithium-ion batteries are looking to add more nickel to their battery formulas instead of the increasingly costly cobalt.

As the report notes, electric vehicle demand is set to grow significantly in the coming years. As such, automakers will be looking to cut their production costs. According to Reuters, the price of cobalt has doubled over the last year, a product of high demand and supply shortage.

Political Instability, Violence in Congo

Speaking of supply, most of the world’s cobalt is mined in the Democratic Republic of Congo, according to the United States Geological Survey (USGS). According to USGS data, an estimated 66,000 metric tons of cobalt were mined in Congo in 2016 — or 54% of the 123,000 metric tons mined worldwide. China came in second last year of cobalt mined (7,700 metric tons), followed by Canada (7,300 metric tons).

However, the unstable political situation in Congo could continue to affect supply, making the metal even pricier. Political unrest recently led to a wave of bloodshed in the country, sparking fear of a return to the civil wars of the 1990s, The Guardian reported.

This is all without even getting to the ethical concerns present in the Congolese cobalt mining world. As noted by numerous media reports, significant chunks of mining revenue tend to go missing via corruption linked to President Joseph Kabila. All in all, the rising demand in cobalt has not benefited the Congolese people. A 2015 IMF report showed the country was experiencing significant economic growth, but poverty reduction lagged behind.

On top of all this, the conditions for Congolese cobalt miners add another ethical concern to the mix, one which big multinational brands will have to answer to with respect to their supply chains. For example, a Sky News report revealed workers as young as 4 working in the Congolese cobalt mines in deplorable conditions.

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While the status of cobalt on the marketplace is obviously not the most important takeaway from the grim situation in the DRC, cobalt production has fallen this year amid the unrest, The Guardian reported, leading to a 90% rise in the price of the metal and a peak of $61,000/ton in July.

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This morning in metals news, some think copper’s hot 2017 could run out of steam, copper stabilized after hitting a two-year peak recently and Asian battery makers are looking to use more nickel instead of cobalt.

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Copper Outlook for Second Half of 2017

It’s not unreasonable to wonder whether or not copper can continue its robust run throughout the remainder of the calendar year.

The metal recently hit its two-year peak. Some, however, think the metal is due to fall off its current pace.

According to a report in Barron’s, there are numerous red flags indicating copper could reverse course — with a particular focus on China.

“Analysts believe regulatory tightening will soon weigh on growth, cooling demand for copper and other industrial metals in the months ahead,” writes Ira Iosebasvili. 

If the Chinese economy hits a period of slower growth — as many in recent months have warned will happen — then the copper market will certainly be affected.

For Now, Copper Holds Steady

Although many analysts are predicting a course correction for the metal throughout the rest of the year, copper is holding steady.

A rally in Chinese steel and iron ore prices painted a positive positive in China, the world’s largest metals consumer, Reuters reported.

Trading in Cobalt for Nickel?

For makers of batteries in Asia, cobalt is getting a little pricey — so much so that some battery makers are turning to even more nickel.

A rise in cobalt prices has inspired battery makers in Asia to adjust their battery ingredient formula, according to a report from Reuters.

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Cobalt prices have shot up over the last year on high demand and supply disruptions, Reuters reports. In fact, Reuters reports the price of cobalt rose to six times that of nickel in July.

Cobalt and lithium have big roles in the burgeoning electric-vehicle market, but they’re still subject to price volatility. scharfsinn86/Adobe Stock

This morning in metals news, demand for cobalt and lithium will only grow with the electric car industry, but price ups and downs are likely in the offing, too; London copper took a dip after the U.S. Federal Reserve’s interest rate hike announcement Wednesday; and the U.S. coal industry, in a world with less demand for coal as an energy product, might have to get creative. One writer suggests mining for coal — not for coal itself, but for rare-earth metals contained within it.

Cobalt, lithium markets growing with EVs, but could see fluctuation

One thing is certain: the electric-car industry is growing rapidly.

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According to a Reuters story Thursday by Andy Home, the number of electric cars on roads worldwide doubled last year to 2 million — but only accounted for 0.2% of the global total. However, estimates indicate that number will grow to 3% as soon as 2021 and 14% in 2025.

With that growth comes a need for certain kinds of metals, like cobalt and lithium.

But with a still relatively young electric-vehicle industry, what will demand for these metals look like in the near future?

Cobalt and lithium, for example, are on the “front-line” of the “green transport revolution, Home writes. But that means, to an extent, being subject to the whims of an industry in its early stages.

Large price hikes in lithium late last year and early this year have leveled off. Home added there could be further price volatility, as producers, analysts and traders try to construct consensus demand models.

Copper falls to one-week low

Copper on the London Metal Exchange (LME) dropped to a one-week low Thursday, on the heels of the U.S. Federal Reserve’s decision to hike interest rates for the second time this year, Reuters reported.

Copper fell to $5,462 per ton, according to the report.

Financial uncertainty in the U.S. and a slowing of the Chinese economy will put selling pressure on metals, according to a Kingdom Futures report quoted by Reuters.

Coal industry mining for … rare earths

Global coal production has declined each of the last three years. With a decline in demand, coal-mining operations have to adapt to a world increasingly powered by green energy.

The solution for some might be mining for coal, not for coal’s energy-producing properties, but for the rare-earth metals found within them, according to an article Thursday in Quartz. Per the article, China currently produces 90% of the world’s rare-earth metals.

It’s an interesting idea, even if author Akshat Rathi writes that his three ideas for extraction of rare-earth metals from coal are currently not economically feasible.

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But, as mentioned in yesterday’s This Morning in Metals post, producers have to adapt with the times. Whether we’re talking about copper producers looking for new markets for their copper or coal-mining operations mining for rare-earth metals found within coal, producers have to adjust or risk being left behind.

Ford Motor Company has bet the farm on electric and driverless cars, to borrow a phrase from an article this week.

The appointment of Ford’s new boss, Jim Hackett — who previously headed Ford’s Smart Mobility subsidiary from March 2016 but prior to that, was boss of Steelcase, a business furniture company — illustrates more graphically than words that Ford has read the runes for the internal combustion engine and the current automotive business model, and decided it needs a radical shake-up in its thinking and approach.

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A rethink of where the industry is going over the next 10 years has prompted not just the hiring of this talented outsider, but also, earlier this year, Ford’s $1 billion investment in Argo AI, an artificial intelligence company that, it is hoped, will produce the software needed for a new generation of self-driving cars.

Self-driving cars, though, are dependent not just on developing new technologies but a host of legal, insurance policy and regulatory changes that will take time to evolve.

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Investors are running up cobalt prices as automakers and suppliers stock up on the raw material for lithium-ion batteries as they prepare for an increase in electric vehicle production.

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Reuters reported that Shanghai Chaos Investments and Switzerland-based Pala Investments as two of the companies that invested heavily in cobalt last year, although the amount they’ve stockpiled is unknown.

On Dec. 1, cobalt was just around $30,000 per metric ton on the London Metal Exchange. As of Monday, one mt of cobalt was trading around $49,000. That’s an increase of 63% in three months.

Report: Trump Will Scrap EPA Clean Power Plan Next Week

President Trump is expected to issue orders next week that will begin the process of striking the Clean Power Plan and ending a moratorium on new coal mining on federal lands.

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The plan was largely opposed by manufacturers and metals producers. Its end will most likely bring a sigh of relief from utilities with coal-dominated generation mixes, as well, since they won’t have to alter their generation mixes within any deadlines.

An interesting article in the Financial Times recently reviewed the acquisition by China Molybdenum of the Tenke copper-cobalt mine in the Democratic Republic of Congo from Freeport-McMoRan.

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As the FT points out the purchase at a price of $2.65 billion is the largest single private investment in the DRC’s history and will be the largest purchase of copper assets since China’s purchase of Glencore’s Las Bambas mine in Peru for $6 billion in 2014.

Cobalt Control

The article examines the risks not to the copper market but to the co-product produced at Tenke, cobalt. The article focuses on risks to the cobalt supply chain of China gaining a dominant position in the global chain for this increasingly critical metal. Read more

The British National Health Service has banned the use of metal-on-metal (MOM) hip replacements, after evidence of unacceptably high failure rates. Regulators insist that the NHS stop using any hip replacment implants with a failure rate higher than 5% over five years.

According to the Telegraph, the warning from the National Institute for Health and Care Excellence (Nice) was issued after research uncovered failure rates as high as 43% among some of the implants. MOM resurfacing models made by the likes of DePuy, Smith and Nephew, and Zimmer (including the Adept, Cormet 2000, Durom, Recap Magnum, and Conserve Plus) have been banned, in addition to the Corail/Pinnacle ceramic on metal devices.

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The British Medical Journal has been much absorbed by this topic and has an interesting paper on its website. According to the BMJ, the conventional total hip replacement consists of a metal head with a polyethylene cup. But these joints don’t last forever. Over time the plastic cup wears away against the hard metal head. Younger, more active people are especially likely to require early revision surgery to replace the worn-out joint.

So attention turned to more durable MOM joints that use a combination of cobalt and chromium. And the fear that metal ion would contaminate the bloodstream and damage  surrounding tissues was countered by assertions that more precise engineering around the sphericity, surface finish, and metallurgy would mitigate the risks. Cobalt ions in particular have been shown to be carcinogenic and to cause destruction of tissue and bone around the joint between the head and stem of the implant.

DePuy (a division of Johnson & Johnson) is quoted as saying that in patients with well functioning devices, levels should be no higher than 2 μg/L. However, studies show that blood cobalt concentrations generated through wearing these newer MOM total hip prostheses can reach over 300 μg/L. This is 600 times higher than physiological levels of cobalt (most healthy people have about 0.5 μg/L of cobalt in their blood).

More than 60,000 patients in England and Wales have received metal-on-metal devices since 2003, when the National Joint Registry first began to record procedures. In the US, the figure is closer to a million, and although manufacturers knew of these toxicity issues as far back as 2007, the procedure was still being marketed up to 2012.

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