US$50/LB PREDICTED

Cobalt price running wild on predicted big supply shortfall

Cobalt was perhaps overshadowed by gold and uranium and other base metals during 2007, but the metal’s price is accelerating on tight supplies and a predicted big shortfall as demand grows fast.

Author: Rodrick Mukumbira (Mineweb)
Posted: Thursday , 03 Jan 2008

WINDHOEK -

It is not as luxurious as gold or as hot as uranium, but cobalt left its mark in 2007, as the former and the latter overshadowed its profile.

Speculative buying and consumer demand in the face of supply constraints in the Democratic Republic of Congo (DRC) and the depletion of US government's and former Soviet Union's stockpiles saw the price for the metal surging over 60% in 2007, the highest since a modern market for cobalt trading was established in 1978.

The cobalt market is currently tight, with producer stocks either said to be sold out or running low, resulting in BHP Billiton and Russia's Norilsk Nickel repeatedly increasing offer prices at every sale.

At the beginning of 2007, the average offer spread cobalt price stood at about US$25 per pound, an increase of about US$12 per pound from the beginning of 2006. The price soared to US$40.25 at the end of the year due to surging demand for batteries for mobile phones and hybrid cars as well as supply constraints following a moratorium on the export of raw concentrates from the DRC in October.

Since the early 90s, cobalt prices had been held down by sales of the US government's stockpiles, and low grade cobalt material from the former Soviet Union, which have largely depleted, according to a Gold Editor Stock Info report.

China increased its consumption to a fifth of global production last year - up from 3% a decade ago, according to Resource Investor, and political concerns following a return to conflict in mineral rich northeastern DRC has had investors worried that production could be constricted.

The Financial Times reported this week that shipments from the DRC, an important supplier, have almost dried up since October when the central government banned concentrates from leaving the country.

Nevertheless, cobalt's public profile is set for further heightening.

Cobalt is largely a copper and nickel mining by-product, with annual production rarely exceeding 65,000 tons, and is now found in a growing range of rechargeable batteries, super alloys such as turbine blades in jet engines, chemicals such as dyes and pigments, wear resistant alloys, catalysts including gas-to-liquid converters, and high performance magnets.

Independent statistics say over the past four years, cobalt use in rechargeable batteries has grown by nearly 300%, the fastest growing segment being the metal's use in fuel-efficient hybrid cars, as the world looks for ways of reducing air pollution and fuel consumption.

The Financial Times report said a battery containing about 2.5 kilograms of cobalt powers the Prius, Toyota's fuel-efficient hybrid car. It quotes auto industry consultants JD Power forecasting that US hybrid-car sales will increase from about 350,000 this year to just over one million by 2012.

Sales of cell phones and laptops are also surging boosting the fortunes of the metal.

This week cobalt for January delivery hit a record-high price of US$45 per pound, according to BHP Billiton's cobalt open sales website, pointing to approximately 50% price increase since January last year.

BHP Billiton, which controls over two percent of the market, sold five tonnes of 99.80% cobalt on December 14 to Europe at US$43, up US$3.75 from its December 7 sale and US$5.25 from its November 29 sale.

Norilsk Nickel was offering the metal at over US$43 per pound.

"The horse has broken out of the stable and is breaking into a full speed stampede, so it's difficult to know where it will end by the time its passions are fully spent," said a bullish trader quoted by Metal-Pages.

Banking group Credit Suisse, which in September inaugurated a market in hi-tech metal cobalt for investors seeking a stable commodity contract, is also confident. Late last month it raised its average price target for cobalt this year by 50% predicting a US$50 per pound price.

"The cobalt market should remain tight, underpinned by tightening short term supply and surging demand," Credit Suisse is quoted as saying, adding "Cobalt prices could spike to $50 per pound in the short term if supply continues to dry up while demand remains strong.

"We believe consumption particularly from China shows no signs of slowing and global demand for cobalt could grow as much as 7% per annum from 2007 to 2009."

The banking group also predicted a supply deficit of 1,680 tons next year.