More aggressive substitution and scrap recovery are needed. We have seen some estimations of significant deficits in the cobalt market in the 2020s. That’s simply not the way commodity markets work; they will naturally self-solve to bring supply and demand closer to balance. In the near term, there is some new cobalt supply coming towards commission in the DRC, plus Glencore’s restart of its copperbelt operations. Moreover, we believe existing assets can squeeze out more supply at current prices. Beyond this, to solve the market balance we assume secondary cobalt recovery grows strongly, more than doubling in volume by 2025. We also have to model ongoing substitution in those sectors where there is less inertia to change, notably prosthetics and hard facing products, plus aggressive shifting to lower cobalt cathodes in EVs.

In all scenarios we can envision, the cobalt price goes higher. To be clear, we have had to make very aggressive assumptions to bring the cobalt market anywhere near balance. To maximise supply and substitute demand in such a way need a simple catalyst – price. Whether this happens sooner or later, in our view the cobalt price will have to move from the current level of ~$30/lb back towards the 2007 peak of ~$50/ lb in order to initiate the processes needed to address the looming market deficits. We have the annual average cobalt price peaking at $40.5/lb in 2019.

Eoin Treacy's view

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There are at least four factories under construction in Asia that are on par with Tesla’s giga-factory with even more smaller factories also under construction. That represents a considerable quantity of potential raw materials demand lining up as battery manufacturing picks up. Since it takes time to build new mining/brine and refining capacity, a supply inelasticity meets rising demand environment is increasingly evident.

Katanga Mining has a copper/cobalt mine in the DRC. The share has held a progression of higher reaction lows since early this year and surged higher today on Glencore’s announcement of a doubling of output. A sustained move below C$1.10 would be required to question medium-term scope for additional upside.

Glencore is bouncing from the region of the trend mean.

Sherritt International produces both nickel and cobalt. The share has been consolidating below C$1.50 since October but continues to hold the upward bias evident since August.

Umicore is a cobalt refiner rather than miner. The share completed a five-year range in 2016 and continues to trend higher. A sustained move below €35 would be required to question medium-term scope for additional upside.