In summary, world trade friction is growing.  More countries are beholden to the kindness of others for those commodities in high concentrations from nations that can employ them as weapons of response to adversarial tariffs.  What is that worth per pound of cobalt?  Nothing.  Until it is.  What is it worth that the DRC is a political quagmire and the country is about to be 75% of world production?  Nothing.  Until it is. What is it worth that China dominates cobalt chemical refining for batteries and western auto companies are still generally open on supply?  Nothing.  Until it is.  It is likely that spot prices are about to soften a bit after an ungodly strong, unabated run. We believe that weakness is merely prelude to new highs when the Fall “mating season” begins.  How do we play it?  Besides our relatively small physical positon, we own Cobalt 27 (KBLT CN) because they hold 3,000 metric tons of cobalt metal safely housed in western warehouses, and we believe they will further execute their business plan by acquiring a stream or streams before the end of the year and share that cash flow with shareholders in the form of a dividend.  We think cobalt prices can trade past the old high of $50 in 2008, a period during which battery demand from electric vehicles did not exist.

Eoin Treacy's view

Here is a link to the full note.

I’ll never forget the bull market in uranium that took place between 2003 and 2007. It was the easiest market in the world to monitor. The price only went up. It highlighted just how useful point and figure charts are in monitoring a runaway bull market. When the consistency of the advance changed the easy conclusion was that a peak of at least medium-term significance had been reached.

There really was an inherent belief that the world was not going to be able to supply enough uranium, that the pace of reactor building was going to continue to accelerate and prices were going to infinity and beyond. The price peaked at $138 and it’s been bouncing above $20 since 2017.


The weekly and daily point and figure charts for cobalt have both now lost uptrend consistency. We can therefore only conclude that a peak of medium-term significance has been reached. Nickel prices are recovering and cobalt is also a byproduct of nickel mining. 8:1:1 battery chemistries are not good news for cobalt because with more nickel production will come more cobalt and not from the DRC.

There is a clear risk that cobalt prices will be much more volatile over the coming years. One measure of the frothiness in the market is that Canada’s Peat Resources, which until December had a market cap of $5 million, is now called Cobalt Blockchain and is supposedly going to solve the DRCs child labour problem with blockchain. Call me skeptical.

This article from the South China Morning Post, kindly forwarded by a subscriber, highlights how much of a role stockpiling has had on the price increases for cobalt.

 

Here is a section:

“Cobalt prices have nearly tripled in the past two years. This is exacerbated by stockpiling activities at different levels along the supply chain and traders taking speculative positions,” the IEA said.

It remains to be seen if that will continue in a falling price environment.

Uranium on the other hand is almost universally unloved but supply is thinning with Cameco, the Kazakh government and most recently Paladin are shutting down supply. With supply decreasing even a modest uptick in demand from reactors starting up again could be a catalyst for higher prices. That was one of topics raised at the Contrarian Club’s dinner last week.