trending Market Intelligence /marketintelligence/en/news-insights/trending/m5iEOyWeYBP3UA-wiYgjFA2 content esgSubNav
In This List

Weak commodity prices, cost blowouts are concern for cobalt, lithium producers


World Exploration Trends 2022


Gold Market Outlook


Insight Weekly: Path to net-zero; US manufacturing momentum; China's lithium M&A frenzy


Insight Weekly: US recession outlook; mortgage activity slowdown; climate disclosure push

Weak commodity prices, cost blowouts are concern for cobalt, lithium producers

Falling commodity prices and oversupply as well as capital expenditure blowouts have been causing concern for many producers of battery minerals including cobalt, lithium and graphite.

In the wake of weak production and earnings results from Glencore PLC for the first half, Credit Suisse on Aug. 2 reduced its target price on the stock to 390 British pence from 420 pence while removing a premium the analysts had applied to the company's net present value. The Credit Suisse team also flagged production guidance cuts and a negative earnings revision by the company.

Meanwhile, Bernstein Research cited low commodity prices and operational issues in central Africa and said in an Aug. 7 note that the mining major's half-year results did not materially change its outlook, maintaining an "outperform" rating with a target price of 500 pence.

Research and consultancy firm Roskill on Aug. 1 noted tumbling cobalt prices and payables as strains on producers of the battery metal. Glencore booked US$350 million in noncash cobalt losses in its half-year report and subsequently outlined plans to place the Mutanda copper-cobalt mine in the Democratic Republic of the Congo on care and maintenance at the end of the year.

Following the initial stages of a review, Glencore's 86%-owned subsidiary, Katanga Mining Ltd., dropped full-year cobalt production guidance to 14,000 tonnes from 26,000 tonnes, with copper output expected to decrease to 235,000 tonnes from 285,000 tonnes.

Benchmark Mineral Intelligence said in its July 2019 cobalt report that a supply glut in the cobalt market, previously estimated at more than 7,000 tonnes, will be cut to negligible levels amid the "drastic" reduction from Katanga Mining's original 2019 production guidance of 34,000 tonnes.

Project capital expenditure blowouts have become a common theme in the lithium sector, Roskill said in an Aug. 5 note. In February, Nemaska Lithium Inc. said it needed an additional C$375 million to finish building its Whabouchi mine and associated Shawinigan lithium hydroxide plant in Quebec.

Roskill said the trend is no surprise considering the processing design complexity involved in producing battery-grade lithium carbonate or hydroxide, the unique characteristics of each development, and a general lack of experience in lithium project development across the industry.

Roskill also flagged technical risk associated with using proprietary processing technology, with the potential for hidden costs resulting from additional engineering studies and construction, such as at the Nemaska operation. Roskill said developing and operating a pilot plant prior to securing financing and construction may prove valuable.

Syrah Resources' plans to increase graphite volumes in second half may cause supply glut

Benchmark Mineral Intelligence warned of a potential graphite supply glut and increasing price pressure, noting Australia-listed Syrah Resources Ltd.'s plans to increase graphite volumes in the second half and decreased industrial demand.

Graphite prices held steady throughout July amid marginal price increases for large-flake graphite grades from China and a slowdown in industrial demand, Benchmark said in its July graphite report.

Syrah Resources bumped up sales volumes from its Balama mine in Mozambique during the second quarter as the mine continued to ramp up and low pricing helped it compete in the Chinese export market. In June, Syrah Resources outlined plans to raise A$111.6 million to provide flexibility in the ongoing ramp-up at Balama.

Chinese flake graphite producers held back from decreasing prices to match counterpart production from the African nation, which Benchmark partly attributed to increased production costs resulting from higher labor and mining costs as well as increased stringency in environmental regulations.