"The cobalt boom is justified."
"The high prices for cobalt and lithium reflect the current supply-demand situation," says Abid Mukhtar of Commodity Capital. "It's still worth getting started."
I already know what most people think: the recent dramatic price increases for lithium and cobalt are exaggerated. This is a hype, a speculative bubble that is fundamentally unjustified. Prices will soon collapse again and it is therefore better to wait for cheaper entry prices;
Anyone who does that will be bitterly disappointed. Of course, there will be price fluctuations. But we will not experience a real correction or even a decline to the levels of a year ago.
Why do I think that? Well, commodity pricing is based on supply and demand. And here the trend is clear: supply of both lithium and cobalt will not be able to keep pace with demand in the coming years.
For lithium, for example, it looks like this: Today we have an annual global production capacity of 0.3 to 0.4 million tons. In 2025, however, we will need one million tonnes of this raw material to satisfy demand from the automotive industry alone. In addition, lithium-ion batteries are not only used in electric vehicles, but everywhere where the storage of energy is concerned. Demand is therefore likely to be even higher.
Will the supply side be able to do justice to this? I don't think so. Lithium is basically abundant. But it takes between five and eight years for a new mine to actually run. For this reason, I assume that we will have a large supply gap at least in the next three to four years. In addition, the storage of lithium is dangerous as the raw material is easily flammable. This is why there are virtually no stocks. Any increase in demand, unless it can be offset by spare capacity, immediately leads to higher prices.
I find the raw material cobalt even more interesting, also a decisive element in the manufacture of a lithium-ion battery. Worldwide production currently stands at around 130000 tons per year. Currently, only about four percent of this is used for batteries, the rest is needed for traditional applications. By 2035, however, it is estimated that almost 94 percent of current annual production will flow into future technologies. That means: Das entire, world-wide offer would have to double itself in this time.
I do not think this is realistic for two reasons. First, the metal cobalt is a by-product of copper mining. The large copper companies, however, usually require over a billion dollars to develop new projects, which is why only a few new mines are currently being planned. Although there are now companies that are planning pure cobalt mines, they are not planning to do so. However, it will be some time before these can actually provide support.
Secondly, cobalt reserves are limited to a few regions. Around 60 percent of production also comes from politically unstable countries such as the Republic of Congo. This is why production and delivery failures occur again and again. Stable supply looks different. In other words: In the coming years there will be no massive boost on the supply side for cobalt. And consequently no easing of prices.
However, this does not mean that investors should now invest in the next best mine operators focusing on lithium and cobalt. Rather, it is crucial to look very closely. Three points are very important: Does a mine still work economically even at lower prices? Does the company operate in a legally secure environment? And is the management good? If you can answer these three questions positively, an investment is worthwhile in the long term - regardless of when you start.
Don't let the recent sharp rise in prices unsettle you. They are well underpinned by the fundamental supply-demand situation. Demand will increase significantly in the long term. And so is the price. Investments are also worthwhile at the current level;