Cobalt’s rise good news for DRC producers
Cobalt has, according to Macquarie, outperformed bonds, currencies and equity this year, with a price rise of almost 80%. Whilst cobalt is used in batteries for devoice such as smartphones, the key demand underpinning this price rise appears to be its expected use in electric vehicles. A Macquarie analyst has been quoted as saying that the current cobalt market can only meet demand for about 7 to 8 million vehicles. Hence the surge in prices, with commentators such as Wood Mackenzie being quoted as saying that demand for cobalt for use in electric vehicles could quadruple by 2020.
Naturally enough, our Africa practice has seen an increase in interest in cobalt production coming out of the Democratic Republic of Congo, which is by far the world’s leading producer of the metal (more than the combined output of the rest of the world’s producers). In relation to established cobalt producers in the DRC, we are seeing interest in more traditional arrangements such as prepaid offtakes, but also in streaming transactions of the kind which were typically used for gold and silver production.
Inevitably, there will be a tension between the price protection or upside sought by the provider of funds, and the cautiousness of producers not to lock in to prices in a rising market. Whilst some commentators are speculating about possible downsides for the cobalt market if prices rise too high – either by constraining productive of vehicle batteries or encouraging the development of alternative technology – there are also signs of a continuing positive long-term view in recent announcements of Volkswagen’s attempt to secure at least five years’ worth of cobalt supply. For now, at least, the outlook on cobalt seems to be supporting strong interest in producers in the DRC.