Is the rally in cobalt a flash in the pan? Some of the battery-sceptic funds certainly think so

Call them battery sceptics. Bets on surging demand for electric vehicles have made cobalt and lithium hot commodities, but some investors say the outlook is leaving them cold.

While prices have more than doubled in the past three years on worries over shortages of the metals used in batteries, Bank of America Merrill Lynch is predicting “severe oversupplies” in the lithium market, and Tesla’s boss Elon Musk says the amount of cobalt his company will use to make electric cars is headed toward “almost nothing.” Subaru and Mazda Motor are for now keeping their focus on conventionally powered vehicles.

“The craziness that you see in cobalt will in many ways actually be corrected,” Christoph Eibl, the chief executive officer of asset manager Tiberius Group, said in an interview. “There’s so much uncertainty about how future technologies will be applied and how much replacement and substitution will actually occur. There will be batteries that will use much less lithium.”

Producers may add 815,000 metric tonnes of lithium to the market by 2025, surpassing a 460,000-tonne increase in demand during that span, according to BofA analysts including Michael Widmer. The expansion in output could cause prices of lithium carbonate to plunge to US$10,000 a tonne, just over half the current average price in Asia so far this year, the bank said.

In the case of cobalt, supply will exceed demand by 652 tonnes this year, and that will widen to 20,842 tonnes next year, Wood Mackenzie forecasts. The surplus is expected to send prices tumbling to an average of US$62,502 a tonne in 2019, down 23 per cent from the forecast for this year, according to the London-based research and consulting firm. By 2022, the price will average just US$44,585.