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Cobalt market set to be in deficit for ten years, says UBS, as price surges

Cobalt prices have risen by more than 40% since December, according to data cited by broker UBS this week.

The current US$22 per pound is the highest level cobalt has traded at since the run up in 2018 and 2019 when the price hit around US$43 per pound.

The broker suggested end-user demand in China as being one of the primary drivers in strength, a as the prices of usable cobalt hydroxides and sulphate have also risen strongly.

Other key drivers include very strong electric vehicle demand in general, buying by the Chinese State Reserves Bureau, and coronavirus-related supply chain disruption.

Overall electric vehicle demand in the key markets of the EU, China and the US was up by 104% during the second half of 2020, and this strength has continued, at least in China, into 2021.

Demand for use in consumer electronics was also stronger than expected in in the second half of 2020 as working from home became the norm and the roll out of 5G began.

As a result of all this, hydroxide inventories at Chinese refineries are low.

As a consequence of all this, UBS expects the cobalt market to be in deficit for the next ten years.

“We still expect electric vehicle demand growth to accelerate, supporting 13% per annum growth in cobalt demand in 2020-25,” the broker commented.

“This assumes a rapid migration to lower cobalt battery chemistries. We expect cobalt supply to grow by around 13% per year, driven mainly by projects in the Democratic Republic of Congo, and for the market to be in a small deficit in 2020-25.”

But there’s a kicker.

“This deficit will be materially higher if Glencore (LON:GLEN) does not restart Mutanda in 2024,” continued UBS.

“As a result, we believe the risk/reward to the spot cobalt price is still to the upside, especially with electric vehicle demand accelerating.”

The broker suggests that Glencore and China Molybdenum (SHA:603993) will be major beneficiaries of a stronger cobalt market.

Also likely to benefit are some of the swathe of junior companies that have earlier stage projects, including Power Metal Resources (LON:POW), Red Rock Resources (LON:RRR), First Cobalt (CVE:FCC), Alta Zinc (ASX:AZI), Cobalt Blue (ASX:COB), Artemis Resources (ASX:ARV) and Global Energy Metals Corp (CVE:GEMC).

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