It looks like cobalt’s price has stabilised – here’s where it’s probably going next
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The cobalt price is looking more stable after it took a steep 42 per cent dive from a record high of $US43 ($59) per pound in March.
The price bottomed at $US25 per pound in early August and cobalt stocks followed it down.
Over 90 per cent of the nearly 70 ASX stocks with exposure to cobalt have sunk up to 85 per cent in the past six months. Over the past year about 60 per cent of stocks have lost ground.
>> Scroll down for a list of ASX stocks with exposure to cobalt
The biggest loser was White Cliff Minerals (ASX:WCN), which slumped 85 per cent to 3c over the past six months.
Mithril Resources (ASX:MTH) slid 78 per cent to 1.1c, Northern Cobalt (ASX:N27) dipped 68.5 per cent to 11.5c and Australian Mines (ASX:AUZ) is down 58 per cent to 4.4c.
Over the past year though Australian Mines was one of the top performers notching a 193 per cent gain.
Things are now looking up with the price of cobalt stabilising at just below $US30 per pound.
Analysts are mostly bullish on where cobalt will go from here.
Wood Mackenzie sees cobalt demand at least doubling by 2025 and the market remaining tight due to the difficulty in sourcing cobalt.
Research director Gavin Montgomery says “rumours of the death of cobalt have been greatly exaggerated”.
“Our base case view has cobalt demand essentially doubling by as soon as 2025, before demand growth really starts to accelerate as EV penetration grows,” he said.
“We remain of the view that the cobalt market will slip into surplus for the next few years.
“For cobalt fundamentals over the long-term, however, the supply picture is altogether more challenging.
“Further out, the market slips into deficit – one that will struggle to be met. Indeed, by the early 2020s, cobalt demand looks to be expanding by around 13 kilotons a year, meaning the equivalent of a major new mine is required each year.”
Too much metal, not enough buyers
Roskill says the recent drop in cobalt price was likely due to reduced trading activity over the Chinese summer and an increase in the availability of physical metal.
“With precursor producers in China thus having satisfied their short-term cobalt chemical requirements in 2017, it may take some time for mass purchasing of cobalt oxide and sulphate to resume,” Roskill said.
“Such a spike in short-term demand will likely lead to a strengthening of the cobalt price, although some market participants remain concerned that access to credit in China could stymie such a recovery in the near-term.”
But the market forecaster says the outlook for demand remains strong, especially from the battery sector.
Wood Mackenzie predicts that electric vehicles will make up 6 per cent of sales by 2025, 11 per cent by 2030 and 36 per cent by 2040.
Investment bank UBS, meanwhile, expects the market to remain in oversupply until 2024, but sees cobalt prices trading between $US20 and $US30 per pound due to car and battery makers looking to build inventories.
“This is slightly above the long-term average price since 1950 in real terms, and a level which starts to incentivise cobalt projects to be built outside of the DRC,” UBS said.
Another factor that has seen investors back out of cobalt stocks is the DRC’s plan to declare certain minerals such as cobalt strategic.
Minerals that are declared “strategic” will attract a royalty of 10 per cent. With respect to cobalt that is double the current royalty.
The DRC is the world’s largest source of cobalt.
A storm in a teacup
But Niv Dagan, executive director at Peak Asset Management, says the issue has been overdone.
“There has been widespread speculation that the proposed taxes and royalties introduced in the Democratic Republic of Congo (DRC) will hurt prices and stockpiles,” he told Stockhead.
“Yes, this has certainly been the case, however it is important to note that miners do not need to worry about paying taxes or royalties, until they start exporting the metal.”
The changes are being introduced under the new mining code implemented earlier this year that brought with it higher royalties and the loss of tax exemptions for mining projects.
“Miners including Glencore, Randgold Resources and China Molybdenum have criticized the new law and threatened to sue to protect their investments,” Mr Dagan said.
“However, we believe that this has largely been ‘overplayed’ and demand will certainly out-strip supply as we head into 2020, providing an opportunity for investors to purchase undervalued securities at a discount to their Net Tangible Assets (NTA).
“Some names we are looking at include Okapi Resources (ASX:OKR), First Cobalt (ASX:FCC) and European Cobalt (ASX:EUC), which is exploring and developing cobalt mines in Slovakia and Finland.”
Here’s a list of ASX stocks with exposure to cobalt – and their recent performance:
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