The Covid-19 outbreak is poised to strengthen the electric vehicle (EV) momentum, as well as the markets for cobalt and copper, says Eurasian Resources Group (ERG) CEO Benedikt Sobotka.  

He notes that the drive towards EVs has been relentless over the past few years, with tens of billions of dollars committed to the electrification of new model offerings.

Automakers have faced two major hurdles, mainly, the irregular and often opaque implementation of government subsidies; and, secondly, the question of how to transform traditional supply chains without facing challenges from politicians and unions, he indicates.

While clarity around incentives may not yet be achieved, governments appear eager to continue to promote the electrification of transportation, he says, highlighting efforts in China and the European Union.

“For governments, it may make sense to use a crisis of these proportions to speed up a change which is already viewed as inevitable.”

Sobotka avers that for automakers, the Covid-19 lockdowns offer a rare opportunity to take a step back and re-evaluate long-term strategies.

“Although these are distressing times, it is also a chance to restructure supply chains and take more decisive steps towards embracing EVs.

"There is a growing appetite for EVs and EV penetration rates are rising across many countries, with the UK having reached a penetration rate of 7% in March, Germany setting a new record at 9% and France reaching a plug-in EV penetration rate of 12%. The same pattern is evident in many other countries," he notes.

Sobotka says EVs are weathering the Covid-19 storm better than internal combustion engine vehicles, and that governments and automakers should have noticed this too.

He posits that lithium-ion battery demand stands to benefit and that cobalt – as an integral part of these batteries – will be in high demand in coming years.

This sentiment is reflected in cobalt prices which, as of April 20, continue to trade slightly higher than at the beginning of the year, unlike many other metals which have seen double-digit price drops over the same period, he notes.

COPPER

Meanwhile, after a sharp fall in the second half of March, copper prices are back on an upward trend, trading above the $5 000/t mark, mainly owed to supply disruptions, says Sobotka.

“While there is little doubt in our minds that the demand side of the market will be heavily reduced this year, the recent swathe of mine disruptions is quickly catching up; so fast in fact, that it is increasingly likely to counteract the losses on the demand side.”

He notes that, typically, in a full year, around 5% of planned copper mine production is lost owing to unforeseen disruptions. About 1.8% of this year's mine supply is expected to be lost from temporary coronavirus-related mine closures and cutbacks to date, equivalent to almost 400 000 t.  

However, he emphasises that this is temporary.

“If we were to assume that the aforementioned disruptions continue until the end of April, that would instead amount to a supply loss of 500 000 t; until the end of May, the figure would rise to 900 000 t.

"Overall, if we add in non-coronavirus-related disruptions and potential price-related shutdowns, an enormous mine supply loss of over 10% in 2020 may be expected - or more than two-million tons.”

Sobotka mentions that scrap supply is another important supply trend that is quietly playing out in the background. Scrap supply cumulatively accounts for about a third of global supply.

He points out that there is a significant shortage of scrap supply.

“Completing the picture on the supply side is the current turmoil in logistics markets across the world. Increasingly, consumers are turning to metals exchange stocks to fill the shortfalls caused by delays in shipments or other restrictions.

"As China’s lockdown restrictions are lifted and its economy gathers momentum during the seasonably strong quarter two, stocks are likely to continue falling at an accelerated pace, and before long, copper prices will recover to pre-coronavirus levels of above $6 000/t,” he forecasts.

ERG is a diversified miner with copper and cobalt assets in Africa.