Cobalt coming back to earth, amid an expected surge in supply

Cobalt’s prices are showing signs of dipping, as demand from the market weakens in the face of news projects coming on stream with others upping production.

WINDHOEK - 

There are indications that cobalt is finally coming back to earth following more than 12 months of a bullish run amid strong demand in a tight market, which culminated in a cynical peak of over US$54 a pound last week.

On Monday this week, high grade cobalt metal was selling for US$53.90 per pound in China, after having achieved a high price of US$55.80, as sluggish downstream demand from the market brought prices down, according to a Metal-Pages.com report.

Last week, after more than two weeks without takers, cobalt miner BHP Billiton had to sell 99.80% metal at US$52.25 a pound. Although the price is a 30-year-high and US$1.25 a pound more than the February sale price, it is less than the US$52.50 that was initially sought. Russian producer Norilsk Nickel showed an offer price of US$48.50 per pound.

A Shanghai-based producer was also offering 72% cobalt oxide at US$37.85, down from the US$39 a pound seen in the past weeks, Metal-Pages.com reported.

"Demand from buyers has been weakening, which has, to some extent, influenced cobalt price levels recently," said the trader quoted by Metal-Pages.com.

The website also quoted an official of a Zhejiang-based smelter as saying: "Supply on the spot market has been relatively tight, but the weak demand has offset the supply shortage."

The official also told of the smelter concluding some of the metal sales at around US$54.54 a pound "in the past few days".

Speculative buying and consumer demand in the face of supply constraints in the Democratic Republic of Congo (DRC) and the depletion of US government and former Soviet Union stockpiles saw the price for the metal surging over 70% in 2007, the highest since a modern market for cobalt trading was established in 1978.

At the beginning of 2007, the average offer spread cobalt price stood at about US$25 per pound, an increase of about US$12 per pound from the beginning of 2006. The price soared to US$40.25 at the end of the year due to surging demand for batteries for mobile phones and hybrid cars as well as supply constraints following a moratorium on the export of raw concentrates from the DRC in October.

Independent statistics say over the past four years, cobalt use in rechargeable batteries has grown by nearly 300%, the fastest growing segment being the metal's use in fuel-efficient hybrid cars, as the world looks for ways of reducing air pollution and fuel consumption.

Nevertheless, the balance is finally shifting in favour of the consumer. The DRC, a major cobalt supplier, has finally concluded the review of over 60 war-tainted mining licences, with expectations now pointing to the possibility of rising supplies and surpluses in this year and beyond.

Analysts quoted by Bloomberg on Monday predicted an 85% surge in production during the next 20 months as mines in the DRC upped production in response to surging demand, with new projects coming on stream.

The price of high grade cobalt would probably decline by 41% within a year to US$30 a pound, Bloomberg quoted Standard Chartered Plc analyst Daniel Smith, who forecast worldwide cobalt production to reach 100,000 tons next year "if all known projects are completed".

Credit Suisse Group's Jeremy Gray forecast a US$18.50 a pound price next year. Last year the banking group inaugurated a market in hi-tech metal cobalt for investors seeking a stable commodity contract.

Prairies International Ltd. and its partner UK-listed miner Central African Mining & Exploration Company (CAMEC) are reopening the DRC's Mukondo Mountain project, halted last year by a mining licence dispute, which CAMEC describes as the richest cobalt mine in the world. The partners, who aim to initially produce 400 tons of cobalt metal a month, hope to raise that to 1,000 tons a month by the end of this year.

New York-listed Freeport-McMoRan expects its Tenke Fungurume project in the country's Katanga Province to begin production in 2009 and ramp up production to more than 8,000 tons of cobalt a year in the first 10 years. Katanga Mining's combined Kamoto and KOV mines are expected to produce 40,000 tons of cobalt by 2011, making the Toronto-based company the world's largest supplier, according to Bloomberg.

First Quantum, which acquired the Kolwezi copper-from-waste project in 2006 after buying Adastra Minerals Inc, expects to add to the market 7,000 tons of cobalt from mine waste in 2009.

Outside the DRC, Chambishi Metals PLC's new Mulyashi mine in Zambia is expected to start producing this year. Other projects include Vale do Rio Doce's Goro nickel fields of New Caledonia in the Pacific, which will add 5,000 tons of cobalt a year in 2009 to the market, as well as Talvivaara Mining Co of Finland, which is currently completing a mine that will supply 1,200 tons of cobalt annually, according to Bloomberg.

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