The recent price adjustment in the cobalt market represents a logical and short-term correction to the heightened speculative activity earlier this year, says Eurasian Resources Group (ERG) CEO Benedikt Sobotka.
Cobalt metal prices jumped in excess of 120% between 2016 and 2017, a sign of strong underlying fundamentals.
But the first quarter of this year also saw increased speculative activity, particularly in China, which drove prices even higher than supported by fundamentals.
“What we are seeing now is a short-term correction, which is probably more pronounced than the underlying market conditions would lead us to expect. Cobalt demand is healthy and ERG believes that, in 2019, global consumption will reach 120 000 t, accelerating further to a forecasted 210 000 t by 2025,” Sobotka notes.
After reaching new highs in late April, cobalt prices have adjusted to levels not seen since the end of 2017.
While there was undoubtedly some price support from speculative investors in the first quarter of this year, investor flight has had a disproportionate effect on prices created by the domino effect.
At the April price peak, a small number of large investors decided to cash in on cobalt positions they had built up over the course of the previous 12 to 18 months; smaller investors followed suit.
“With the price drop, consumers have erred on the side of caution, operating on a hand-to-mouth basis with minimum inventories, thus eliminating some of the demand which would traditionally have existed in the pre-summer period.”
Chinese processors began to offer cobalt metal in the export market, while international traders, seeing a major arbitrage opportunity between Chinese domestic prices and European and US, prices began to sell forward at discounted rates, explains Sobotka.
Along with a small number of large projects, he believes ERG’s Metalkol Roan Tailings Reclamation project, in the Democratic Republic of Congo, will help to cover near-term demand; but there are few additional large-scale projects on the horizon to fill the deficit which develops going into the 2020s.
Meanwhile, he comments that the cobalt industry has, over the past few years, been attacked for the use of child labour and other malpractices.
“It is a lamentable situation which is not condoned by ERG or our customers. It is important to stress that if one discounts the portion of cobalt produced under questionable conditions, the market will remain in deficit; in this two-tier market, consumers that value high-quality sustainable cobalt, will likely pay a premium for such supply.