Glencore is targeting a 42% increase in cobalt production this year, despite the fact that full-year production for 2017 was down by 3% on an annual basis, according to the trader and mining company’s quarterly production report released on Thursday February 1.
The decline in Glencore’s production of cobalt, a by-product of copper and nickel mining, comes amid falls in copper and nickel output across its global assets.
Copper production across Glencore’s African operations fell 6% year on year in 2017, with cobalt production at these assets similarly lower at 23,900 tonnes last year, compared with 24,500 tonnes a year earlier.
Meanwhile, nickel production at the trader-miner’s Murrin Murrin operation in Western Australia, which contributes the majority of Glencore’s cobalt metal production from among its nickel assets, declined by 3% on an annual basis in 2017 to reach 34,100 tonnes, with operational rates affected by a scheduled maintenance shutdown during the first half of last year. Blue metal production at Murrin Murrin was down by 4% year on year to 2,700 tonnes.
Glencore’s own-sourced nickel production at its Integrated Nickel Operations (INO), including Sudbury, Raglan and Nikkelverk, also declined 13% from 2016 to 57,500 tonnes in 2017, mainly due to a higher proportion of third party feeds in the production mix. Cobalt metal production at INO was down by 20% year on year to 800 tonnes in 2017.
Higher guidance in line with optimistic view on EVs
Despite this, Glencore has raised its cobalt production guidance for 2018 to 36,000-42,000 tonnes, with an additional 11,000 tonnes expected to come on stream this year following the commissioning of the whole ore leach project at the trader-miner’s Katanga operation in the Democratic Republic of the Congo in December 2017.
Furthermore, cobalt production at the Katanga mine will more than triple between the 2018 and 2019 financial years, on the basis that the second train of the whole ore leach plant and the cobalt debottlenecking project have been completed, Katanga Mining said in December.
Cobalt output at Katanga is expected to total 34,000 tonnes in the 2019 financial year, and 32,000 tonnes in 2020.
The jump in Glencore’s cobalt production is in line with the trader-miner’s view that there will be mounting demand for the blue metal from the battery sector, particularly for batteries used in electronic vehicles (EVs), a number of market participants acknowledged.
In December last year, Glencore chief executive officer Ivan Glasenberg described the EV movement as a "disruptive force", which will drive the metals industry to produce the commodities required for EV development.
Cobalt prices have surged rapidly over the past year amid mounting anticipation and excitement over the blue metal’s prospects for use in the production of EV batteries.
Metal Bulletin’s low-grade cobalt, in-warehouse price was assessed at $37-38.40 per lb on January 31, up more than 120% from one year ago, while the high-grade cobalt, in-warehouse price was assessed at $37.20-38.50 per lb on the same day, up by around 120% on an annual basis.
However, an expected surge in cobalt supply in 2018 and following years - in part due to Glencore’s production ramp-up – will prevent the cobalt price from increasing “dramatically,” Chris Berry, founder and president of research and investing firm House Mountain Partners, told American Metal Market earlier this year.
Indeed, analysts at Macquarie cut their price projections for cobalt earlier last week, citing easing tightness for the battery raw material in the coming years amid expectations of supply growth.
Macquarie analysts expect cobalt prices to average $26 per lb in 2018, before falling to $16.50 per lb in 2019 - a cut of 4.6% and 17.5%, respectively compared with previous forecasts. Forecasts for 2020 and 2021 have been cut to $18.50 and $24.25 per lb, respectively, down 14% and 24.2% compared with previous forecasts.
“Rising output from Glencore’s copper-cobalt operations in Africa will push the market into a surplus in the medium term, for example,” the analysts said.
“Despite the material upgrades to our near-term forecasts, we note that current spot prices… continue to trade above our estimates. The most material upside lies with cobalt, where current spot prices of about $36 per lb are 38% higher than our 2018 forecast and 118% higher than our 2019 estimate,” the analysts added.
Nevertheless, cobalt remains one of the most promising metals this year and prices may continue to see further extensive gains over the next twelve months, with support from growing interest in the EV sector.