Bearish Reflections:
Cobalt's Calm Before the Storm
American Metal Market coverage of the Cobalt '98 conference
held in West Palm Beach, Fla., Jan. 27, 1998.
An end seen to cobalt calm
Cobalt races toward low prices
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An end seen to cobalt calm
By MARGARET MANOUSOFF
WEST PALM BEACH, Fla. -- Cobalt prices can be expected to hold their own until 2000, but this is only the calm before the storm, according to an industry consultant. Peter Searle, managing consultant for London-based Resource Strategies, predicted here that a deluge of new production set to come onstream early in the millenium will lead to a more than 75-percent decrease in cathode value by 2006.
Searle said on Tuesday during his keynote address at "Cobalt '98," an international business conference sponsored by Gorham/Intertech, that he expects cathode (99.8%) prices to remain at or near current average levels of about $25 per pound until 2000, but thereafter he forecasts a "progressive reduction" to $15 per pound by 2002 and then towards the marginal cost-of-production level of about $6 per pound by 2006.
In general, conference speakers and attendees agreed with Searle's bullish outlook for cobalt until the end of the century. Adrian Gardner, analyst with Brook Hunt, told American Metal Market he expects cobalt prices to be "well supported for another year at least."
As for the market past 2000, few cared to speculate with as much specificity as Searle, citing the past volatility of cobalt prices as well as the difficulty of predicting the outcome of mining projects still in the planning stages. But omnipresent was the acknowledgement that, as Mark Seddon, general manager of London-based Roskill Information Services put it, "there are a large number of potential cobalt-producing projects under development around the world and this extra supply may lead to a significant drop in prices."
Propping up price levels in the short term, Searle said, is global supply tightness. He estimated 1997 world consumption to have been 29,400 metric tons, compared to a total supply of 26,600 tons from all producers and releases from stockpiles last year. He suggested the 2,800-ton shortfall was met by such hard-to-quantify supply sources as the recycling of chemicals, mainly catalysts, cemented carbides and superalloy scrap, and the processing of intermediate or secondary cobalt from Africa and Russia, which he said he suspects is being used in the chemical sector.
Searle forecast world cobalt consumption to increase at a rate of 3.9 to 5.4 percent annually to reach a level of 37,000 to 40,000 metric tons by 2002, though he emphasized that this estimate does not factor in the potential long-term effects of the Asian currency crisis. Searle's prediction included a 6-percent annual growth rate in the chemical sector, particularly in cobalt-bearing portable rechargeable batteries, and a 7-percent growth rate in superalloys using the blue metal.
But looming on the heels of this projected growth are 41 new cobalt projects that Searle said "have to be considered seriously" and which could yield an additional 70,000 metric tons of cobalt annually by 2005. This includes an expected 30,000 tons per year from the Democratic Republic of Congo; 10,000 tons from Australia; and the remainder from locations scattered around the world, including Canada, Indonesia and Cuba.
In short, Searle said, expect a "massive surplus in supply after 2000."
Cobalt races toward low prices
By MARGARET MANOUSOFF
AMM News Analysis
WEST PALM BEACH, Fla. -- At first glance it seems paradoxical: The cobalt industry overwhelmingly holds that it is headed toward significant oversupply accompanied by plummeting prices sometime early in the next century, and yet scores of companies are competing to bring new capacity on-stream.
The key to the puzzle, according to speakers at Gorham/Intertech Consulting's "Cobalt '98" conference here, lies in three main factors: cobalt's status as a by-product, a breakneck-paced race toward the production finish line, and a hope for future demand growth.
In terms of supply, conference attendees repeatedly heard that the first of a major new generation of cobalt-bearing projects, including Anaconda Nickel Ltd.'s Murrin Murrin, Centaur Ltd.'s Cawse and Resolute Samantha Ltd.'s Bulong nickel laterite mines in Western Australia, as well as Kasese Cobalt Co.'s Kilembe tailings project in Uganda, are scheduled to begin output by the end of 1998, and this is only the tip of the iceberg.
Mark Seddon, general manager of Roskill Information Services Ltd., London, estimated that 55,500 metric tons of additional production could flood the market by 2003. Peter J. Searle, managing consultant of Resource Strategies, London, identified 41 serious new projects that he said he believes will result in an additional 70,000 tons of cobalt on the market by 2005, a figure he contrasted with estimated 1997 total global consumption of 29,400 tons.
And on the price front, while not everyone here agreed with Searle's prediction that merchant-grade (99.8-percent) cobalt could crash from current average levels of $24 to $25 a pound to $6 a pound by 2006, a panel discussion unanimously concluded that prices were definitely headed toward $10 a pound--the only issue was how soon they would get there.
So why would so many people want to break into the cobalt market now?
With the exception of tailings projects such as those in Morocco and Uganda, which Seddon predicted would account for about 7 percent of total production to 2003, cobalt occurs as a by-product of nickel or copper mining. At least in theory, he pointed out, this means that most new projects are not really concerned with the cobalt price.
Concerns about viability and profitability instead rotate around the price of the main product, which is produced in much greater amounts. Cobalt's fortune, in other words, is generally piggybacked on that of copper and nickel.
The three nearly completed Australian projects are set to become by far the lowest-cost producers in the world. At Murrin Murrin, which conference head Donald R. Muzyka, president of New Hartford, N.Y.,-based Special Metals Corp. referred to as "the killer project," estimated cash production costs for nickel are 60 cents per pound. According to Richard Monti, Anaconda Nickel's chief geologist there, this means that cobalt can be produced very economically even based on a cathode price of $12.50 per pound, or roughly half current market value.
Seddon noted that at these levels, the Australian projects would be able to withstand even the most dire forecasts of huge oversupply and tanked prices, and will push higher-cost producers out of the market in the process.
Other proposed new cobalt production has gotten bogged down in recent months: Inco Ltd.'s Voisey's Bay has postponed its estimated start-up date until at least 2001 due to environmental and native land title issues, mining negotiations in the Democratic Republic of the Congo have yet to be resolved, and the ghost of the Bre-X scandal haunts any junior company in search of funding.
In addition, depressed London Metal Exchange prices for copper and nickel may cause further delays, according several speakers, including Paul Helsel, president of Carnegie, Pa.,-based Phoenixx International Resources.
Speakers said the Asian currency crisis has had little direct impact on the cobalt market thus far, but it, too, was seen by many as a factor that could ultimately discourage new mining projects.
The net effect of these actual and potential production delays has been to encourage cobalt contenders to race to be among the first online. Conventional wisdom here held that some will make it and others will drop out, but at this point no one knows for certain who will fall into either camp.
Many of the proposed projects, such as Vancouver, British Columbia,-based International Panorama Resource Corp.'s Kakanda copper-cobalt project in Zambia, a joint venture with Zambia Consolidated Copper Mines Ltd., are still actively pursuing financing--trying to "cash in before the crash" is how P. Terrance O'Kane, Panorama's director, phrased it.
But there is only a finite amount of financing to go around, as Seddon noted. As arrangements are finalized for some, he said, the field of contenders is likely to thin out and some projects will be deferred.
He noted that Australia's Yakabindie project, for example, has been postponed recently due to its inability to obtain the necessary funding after a South Korean backer pulled out.
In the long term, potential newcomers to cobalt mining are betting that demand for the blue metal will grow, particularly in chemical applications (primarily portable rechargeable batteries) and in superalloys. For these market sectors, Searle predicted growth rates of 6 percent to 7 percent annually until 2002.
And several speakers here expressed hope that the lower prices on the horizon could in fact act as a catalyst for research and development, spurring new, cost-effective uses for cobalt.
But Hunter Dalton, director of billet operations and plant manager of Allvac-Allegheny Teledyne, Monroe, N.C., cautioned that this was only likely to happen if cobalt could overcome its past history of price volatility. The market "needs to prove its stability," he said, before there will be a major turn to cobalt for new applications. |
