Cobalt – Strategic and in Short Supply – Part Two

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Minor Metals

This is part two of a two part series on cobalt. You can read part one here

Because of its strategic position, the US Defense Logistics Agency (DLA) had a stockpile of 52.5 million pounds of cobalt in 1993 but has since sold metal and was forecast to have only about 1 million pounds left by mid 2008. Recent figures from the CDI show this has been reduced almost to zero even though the DLS has said they intend to keep some low stock levels in reserve.

Part of cobalt’s price strength during the last bull run was the demand from new applications like lithium ion batteries, in addition to strong demand from aircraft engine makers, medical implants and chemicals. Cobalt prices soured in early 2008 to over $50/lb only to crash to $13/lb today. Ultimately the market is damaged by such volatility and substitution began to become an issue at anything over about $35/lb. The historic annual average cobalt price over the past 40 years was about $13/lb and over the past 10 years has been about $18/lb according to the CDI, during which time the market has seen solid demand and production growth ” with the exception of the price spike in 1978 due to the Shaba invasion in Zaire (DRC). Now mining capacity is being closed or idled most rapidly where the cost of production is highest, so mines in Zambia and DRC were some of the first effected, along with sole cobalt mines in Canada and Morocco. But as copper and nickel mines elsewhere have been idled, cobalt concentrate production has been lost. Prices are unlikely to rise significantly until demand picks up and with the global recession hitting nearly all applications for cobalt that may take some time. But as more mining capacity is taken out of the market, particularly nickel production; the supply situation will come back into balance. With current prices not far below the historic average though even a 50% increase in price would not prompt demand substitution or be enough to bring back additional sources of idled supply. So the medium term future of cobalt prices rests on the rate of current de-stocking and the continued demand from lithium ion batteries and the medical industry, the two bright spots on cobalt’s horizon. We may look back from 2010 or 2011 and view the first half of 2009 as the trough in cobalt prices, only time will tell.

–Stuart Burns

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