Cobalt prices are set for a drop this year as a widening market surplus is further bumped by ramped-up Chinese production.
"Last year's advances in cobalt consumption paled in comparison to the expansion of the commodity's supply base," said Maartje Collignon, analyst at CRU Group, speaking at the Metal Pages Minor Metals Conference on Wednesday February 16, 2011.
A significant driver last year was added refined production from China – the country produced 45 percent of global supply in 2010, up seven percent from the year before. This increase, in large part, comes from new mines in the Democratic Republic of Congo (DRC) which made more cobalt-containing ores and concentrates available, in turn benefiting China’s output of cobalt salts and chemicals. Market surplus in 2010 caused cobalt prices to decrease by 25 percent in 2010, according to CRU Group data.
"As soon as cobalt mines in the DRC started production, China was quick to secure off-take agreements and has taken advantage of this boost in feedstocks,” says Collignon in a phone interview on February 18. CRU Group expects Chinese refined production to increase another two percent and total production to increase 13 percent in 2011.
The industry researchers forecast high-grade cobalt to average $16.60 per pound in 2011, down from $20.50 in 2010 while low-grade is seen to average $14.20 per pound, down from $18.70. They were last in price ranges of $19.50 - 21.00 and $18.25 - 19.00 respectively, according to Metal Pages data.
The metal – used primarily in superalloys for gas turbines and jet engine parts, rechargeable battery manufacture, and as a catalyst in the petroleum and chemical industries, as well as other applications – is expected to see a supply of 84,000 tonnes, while demand is forecast to 70,000 tonnes in 2011, according to CRU Group.
Much of the excess is from anticipated increases for Chinese refined production and expansion at Katanga mining in the DRC, and a marginal amount is seen from new projects in the South Pacific.
"If new projects...meet their start-up targets this year...and others pursue planned expansions, the market will remain oversupplied throughout this year," said Collignon, adding that any delays to new production would see prices revised upwards, particularly if there are setbacks in Chinese production.
In terms of demand, economic growth in key sectors is expected to remain robust – a return of business and leisure travelers means manufacturers may see more orders for jet engine components. In addition, increased production of hybrid electric cars will slightly underpin the cobalt-using battery market. But in general, battery demand has been disappointing and is likely continue being so, according to Collignon.
DRC Conflict Minerals Legislation and "Wikileak" Cause Confusion for Cobalt Industry
Recent legislative issues making headlines have caused some confusion in the industry, notably, the Congo conflict minerals rule which follows from last year's sweeping Dodd-Frank financial reform bill. Because of the DRC’s importance in the cobalt market, potential impacts for the industry are still being studied, says David Weight, general manager of the Cobalt Development Institute (CDI) in a phone interview on February 18.
The Congo rule - if approved - will require companies that source minerals from the Democratic Republic of Congo (DRC) to file a report with United States financial regulator, the Securities and Exchange Commission, detailing if raw materials such as tungsten, tantalum, tin, and gold - used in the manufacture of everyday electronics such as mobile phones and laptops or jewellery - originated in the country or surrounding African nations.
Complicating the issue are media reports of leaked diplomatic cables by the media organisation WikiLeaks that US Secretary of State Hillary Clinton dubbed a cobalt mine in the DRC as critical to the security of the United States, prompting speculation over whether cobalt may be considered a conflict mineral in the future.
"Industry wants to be sourcing from responsible, sustainable areas and [Dodd-Frank] has laudable aims, however, there is some confusion over different geographical regions of the DRC where this type of legislation is most likely to affect the cobalt industry," said Weight.
Weight explains that the ”copper belt” is a mineralised zone found in Southern DRC and neighbouring Zambia, an area that has been mined for many years with different regional issues than those found in conflict-torn areas in the country's Eastern region.
"CDI strongly supports international efforts to encourage greater traceability of minerals sourced from such conflict regions as Eastern DRC, and in particular to encourage supply chain transparency for such minerals." Cobalt, he said, was not a ‘conflict mineral’.
Source: SEC Proposed Conflict Minerals Rule **Note: The deadline for public comments has been extended to March 2, 2011.
Anna Reitman - Anna Reitman is a journalist currently working and residing in London, UK, having completed an MA in international journalism (print).
