Cobalt is a strategic and critical metal used in diverse industrial and military applications. According to USGS, the largest use of cobalt is in superalloys, which are used to make jet engines. One other fact about cobalt is that it is mostly produced as a byproduct of other abundant metals. That means that the price of cobalt could be really volatile. Here are the top factors that move the price of cobalt.
US National Defense Stockpiles
In 2004, there was a decline in the price of cobalt. That decline was attributed to the US government stock sales, recycling and new production. Here is how. According to USGS, the United States is the world’s largest consumer of cobalt. However, the country has no domestic mine or refinery production. It means that the country is 100% dependent on imports for its supply of primary cobalt. Therefore, it means that anything that might affect demands from the US is most likely going to affect the price of the metal.
In that year, for example, the US was doing more recycling in order to get cobalt. This led to the fear that demands from the US would decline as a result of the strategy, thereby, leading to decline in prices.
Geopolitical issues in supplying nations
According to Mining Weekly, the leading cobalt-mining countries include Democratic Republic of Congo (DRC), Zambia, China, Australia, Russia, Canada and Cuba. Most of these countries often witness unstable economic and political issues. Geopolitical issues in these counties bring about fears that the supply of cobalt would be affected, an event that lead to price decline.
One thing to note is that the effect of geopolitical issues on the price of cobalt would be more pronounced in countries that mine more cobalt. For instance, if there is a geopolitical issue in DRC, which is, by the way, the world’s largest miner of cobalt, you can expect that the effect of the issue on the price of cobalt would be higher compared to if there is a geopolitical issue in Cuba. As you might predict, geopolitical issues, which threaten supplies, are likely to drive prices high. However, the effect of geopolitical issues on the price of cobalt is gradually die down as more and more countries are getting involved in cobalt mining.
Just as it is with most industrial metals, the price of cobalt can be influenced by economic conditions. For the most part, the price of cobalt is said to be proportional to the economic strength. In other words, the stronger the economy, the higher the price of cobalt would be – and vice-versa.
Chart showing the price movement of cobalt
If you consider the chart above carefully, you’d see that the price of cobalt declined a great deal during the last recession – to confirm the argument here. Here is an explanation for that. During an economic downtime, companies are forced to reduce productions – some companies even stop production completely. This means that the amount of cobalt used in production would reduce, which would reduce the demand for cobalt, a prerequisite for a price decline.
Demands from china
China is currently the world’s second-largest producer of cobalt. Despite that, though, china imports large volumes of cobalt concentrates every year. This means that information from China's State Reserve Bureau, or SRB, has the potential to affect the price of cobalt. For instance, according to Metal Bulletin, analysts predicted a spike in the price of cobalt in 2014, owing to information that the SRB planned to purchase more cobalt.
Production of nickel and copper
Cobalt is mostly produced as a byproduct of either copper or nickel. This leads to a kind of supply inelasticity, in which the price of cobalt is influenced by the supplies of nickel and copper – instead of that of cobalt. Therefore, speculations about more productions of nickel and copper could lead speculators to believe that cobalt supplies would increase, which ends up driving market prices low.
The increasing number of substitutes that could be used in place of cobalt is also believed to be driving prices low. Here is why. Simply put, when the number of substitute metals is low, the reliance on cobalt is high, hence demands – a prerequisite for higher prices. However, as more options come along, the reliance on cobalt reduces, which would lead to a decrease in its demand, a prerequisite for lower prices. So traders want to keep tabs on what manufacturers that use cobalt are using.
Cobalt prices could even go lower if a spike in supply accompanies the increasing number of options.
In 2003, there was a significant spike in the price of cobalt. While there are number of factors that contributed to the price hike, many analysts – notably the folks at GFMS Metals, a UK-based consultancy – said a weakening dollar was responsible for the price hike. The strength of the dollar is able to affect the price of cobalt mainly because US is the largest consumer of cobalt in the world. It means that the buying power reduced. Therefore, traders want to keep tabs the movement of the dollar when looking to lock in futures of cobalt.
Overall, with cobalt being a trace metal, every trader should bear in mind that the price of cobalt could be highly volatile. As its price chart above shows, its price has risen as high as $50 over the past 10 years, only to drop below the $15 mark within the space of a year. The key to predicting the price of movement cobalt lies in every trader’s ability to consider the factors above adequately.