CAPE TOWN (ResourceInvestor.com) -- While many commodities are rallying, the outlook for cobalt is not as cheery, according to Robert Baylis, senior analyst for Roskill Information Services Ltd. and author of its latest reports on cobalt and zirconium.
Demand was up in 2007 due to project delays, specifically in the Democratic Republic of Congo, but an oversupply is expected worldwide from 2010 onwards even if production in the DRC does not pick up, Baylis said in his cobalt outlook address at the Commodities Review & Forecasts session.
"The DRC has declined significantly in production," Baylis said, but China has increased output to 14,000 tonnes in 2007 from 1,000 tonnes in 1998. Production in Finland, another world leader, has been flat over the last 10 years.
Supply will likely fall considerably in 2009 due to project delays and permit restrictions in the DRC, but a new round of projects both in the DRC and worldwide will increase output by 2010 and beyond thanks to increased by-product production from copper and nickel mines.
"We see huge amounts of potential cobalt production over the next few years," Baylis said.
Cobalt supplies are expected to be 80,300 tonnes by 2010, according to the Cobalt Development Institute (CDI). Prices have more than tripled in the past two years, rising from $15.20/lb at the end of 2005 to today's price of $48.50/lb for February delivery.
The cobalt price has mostly been driven by supply concerns in the past. The U.S. government held a stockpile in the 1990s that has largely depleted, and China has increased its consumption to a fifth of global production last year, up from 3% a decade ago.
"During 2006 the effect of Chinese demand began to take effect and coupled with constrained supplies of raw material from the DRC and limited (USA Defence Logistics Agency) releases into the market, prices doubled during the year to about $25/lb and continued to rise into 2007, peaking at about $30/lb in March," according to a CDI report.
In addition to increased Chinese demand, cobalt use in rechargeable batteries grew by in the past three years. Batteries represent 28% of cobalt demand globally, while superalloys make up 21% of demand and catalysts 12%. Total annual demand has risen from about 35,000 tonnes to 50,000 tonnes over the past 10 years, Baylis said.
Batteries will likely cause a significant jump in cobalt demand by 2012, Baylis said, unless talk of replacing cobalt in batteries becomes a reality. But demand for cobalt in aerospace applications could be affected negatively by a U.S. recession.
Catalyst demand is likely to increase cobalt demand over the next few years but it is not certain, Baylis said. "It is a little more difficult to predict because (catalysts are) split over a number of resources."
All factors considered, the cobalt price may fall this year to just more than $10/lb from highs of more than $30/lb last year, marking "a return to the historical average," Baylis concluded.