Can Cobalt Maintain its Meteoritic Rise in 2008?

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For any consumer of Cobalt metal or components with any significant Cobalt content the price pressures must have been nigh on unbearable this past year. Driven by consumer demand and an element of speculative buying in the face of tight supplies, Cobalt has increased from $13/lb at the beginning of 2006 to $27/lb at the beginning of 2007 and closing 2008 it stood at $40.25/lb.

The supply market is tight, apparently producer stocks are low, one of the world’s principal and traditional sources, the Democratic Republic of Congo (DRC) placed a moratorium on exports of cobalt concentrates and trickle sales form the US government stockpiles are finally coming to and end. The DRC was the world’s largest single supplier of Cobalt, often produced as a by-product from Copper production, in the days when DRC’s Gecamines was a major producer sitting on the world’s richest ore Copper and Cobalt ore bodies during the 1980’s. Even today many of the tailings dumps contain higher copper and cobalt levels than new rock projects in other parts of the world. But decades of mismanagement, corruption, war and under investment has brought production to 10% of what it was in its heyday.

Demand on the other hand has been driven both by China but more broadly by the strength of specific high tech industries for which Cobalt is a non substitutable material. Historically, cobalt has been in super alloys used in gas turbines and this still remains an important market, particularly with the strength of the aerospace and power generation markets. But more recently cobalt’s use in rechargeable batteries for cell phones, laptops and fuel efficient hybrid cars has created demand growth of 7% per annum. The Financial Times is quoted as saying a Toyota Prius contains 2.5 kg of cobalt in its batteries, production is currently 350,000 per annum and is set to reach over one million by 2012 .

So what will be the outlook for Cobalt consumers in 2008? More of the same is probably the reply. Credit Suisse is predicting $50/lb for the metal in 2008, with demand growing and no new supplies coming on stream. At some stage the DRC will probably release concentrates again. Their moratorium is already hemorrhaging as metal is smuggled daily into neighboring states and exported by Indian and Chinese middlemen. However, a major increase in production will only come with significant investment by North American or Asian mining firms. First Quantum of Canada and Phelps Dodge of the USA are the first to have new copper mining operations in the pipeline but cobalt and copper supplies are unlikely to come to market before late 2008. New Nickel Cobalt projects in western Australia like Ravensthorpe are also expected to be significant sources of cobalt in the medium term but shipments of material have only just started and will unlikely affect the market much before the second half of 2008

So fix prices at 2007 levels where you can. There is no futures market for cobalt so there are limited hedging opportunities. Lisa Reisman’s article of January 7 has a few suggestions for cost mitigation tactics. Consumers of casting and forging alloys, dye and pigment chemicals, batteries, super alloys for aerospace and the oil/gas industry, in fact a wide range of consumers of specialist metals containing even small quantities of cobalt could well see prices rises and tight supply during the year ahead, better be prepared.

 –Stuart Burns

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