London — Cobalt, a key component in electric vehicle batteries, could come under further downward pressure as supply grows and consumers seek alternatives, Bank of America Merrill Lynch said Monday.
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Cobalt has seen the steepest price drop of all commodities over the past six months, the bank said.
Cobalt prices had a rollercoaster year in 2018, starting at $35/lb, peaking at $43.70/lb in April, and ending the year at $26.50/lb. Volatility was the highest since 2008.
"Beyond macro, the headwinds to cobalt have been heavily influenced by rising supply for instance from artisanal miners in the Democratic Republic of Congo [the world's biggest supplier]," the investment bank added.
Glencore, one of the world's largest diversified miners and one of the world's biggest cobalt producers from the DRC, saw a leap in output in 2018 following the restart of its Katanga mine.
"Glencore's cobalt output came in at 42,000 mt, 19% above our forecast, with strong output at both Katanga and Mutanda, beating the upper end of the annual guidance of 37,000-41,000 mt," BMO analyst Colin Hamilton said.
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The Katanga restart underpinned a 54% surge in Glencore's 2018 cobalt production to 42,200 mt. Katanga's production alone was 11,000 mt.
There is "no shortage of potential supply but there could be a lack of mining investment to extract it," Eurasian Resources Group marketing director of copper and cobalt African sales, Giles Smith, said.
He noted that if consumers wanted low cobalt prices, they would have to support the development of supply assets.
A senior Japanese trader agreed that there was not a lack of cobalt. Instead, there was a lack of trust and transparency regarding the supply chain from the DRC, he said, adding that this needed to be addressed.
The DRC has long been dogged by a perceived corrupt image. Artisanal mining in the country can lead to questions of where and how the metal has been mined.
The Bank of America Merrill Lynch note went on to say that: "We note that cobalt substitution continues, also because car producers are wary of relying on cobalt supply from the DRC, which has been politically unstable periodically. Putting it all together, we forecast cobalt demand increases, which suppliers should however be able to feed near-term."
Cobalt was a hot topic at this year's Mining Indaba conference in Cape Town, South Africa, at the start of February, as carmakers and others in the electric vehicle supply chain continually attempt to whittle down the amount of metal used in batteries, sources said.
Technology houses, such as Johnson Matthey, are working on new systems that almost eliminate cobalt from EV batteries. However, many question how long this will take to market and whether it is possible to be 100% cobalt free.
S&P Global Platts assessed EV battery grade cobalt sulfate with 20.5% cobalt content unchanged at $12,800/mt CIF North Asia Thursday February 7.
-- Ben Kilbey, firstname.lastname@example.org
-- Edited by James Burgess, email@example.com