Lithium and Cobalt Prices Are Collapsing, Punishing Investors in Electric Vehicle Metals

Investors who have positioned themselves in cobalt and lithium, two widely used metals in the electric vehicle space, have watched everything from stocks to oil outperform them so far in 2019. Cobalt and lithium are both used in making rechargeable batteries and have been viewed as a way to gain exposure to the EV market through commodities. 

But the price of cobalt has fallen more than 30% so far in 2019, to its lowest level in two years, according to the Wall Street Journal. Additionally, Benchmark Mineral Intelligence publishes a lithium index that, in January, fell for the 10th consecutive month.

This year's drop in both metals contrasts with how they performed in 2017, when prices soared in anticipation of a new wave of demand. 2019's price slump is proof that "trendy trades" can reverse course quickly as burgeoning industries take shape for the first time. 

As a result of the price spikes in 2017, miners moved quickly in 2018 to increase production. The resultant supply, coupled with slowing growth in China (a major player in EV supply chains), caused prices to begin tumbling. 

The price collapse has come even as global sales of electric vehicles were up 64% in 2018. Both the U.S. and China saw nearly 80% increases in sales growth despite EVs accounting for just 2% and 4% of their markets. A cloud of anxiety about the future of the sector and rates of adoption continues to loom over prices. 

Chris Berry, founder of House Mountain Partners LLC, a New York-based adviser to battery-metals companies and investors, told the Wall Street Journal: “Investors want certainty. It’s just going to take some time for that to come about.”

While some investors expected that the price of lithium may cool as a result of oversupply in South America and Australia, the drop in cobalt prices caught many investors off guard. Many had expected that supply challenges in the Democratic Republic of Congo would support cobalt prices, since the country accounts for about 70% of global supply. But instead, cobalt output from companies such as Glencore PLC and China Molybdenum Co was significant at the same time that smaller miners ramped up production. 

George Heppel, an analyst at commodity research firm CRU said: “There’s just so much extra supply coming from all the project expansions in the DRC. It’s been a bit of a roller coaster the last few months.”

Many publicly traded cobalt and lithium companies and producers have been hit along with prices. First Cobalt Corp. is down 83%, while Lithium Americas Corp. has fallen 57%.

The breakneck pace that the industry moves at is evident. Nemaska Lithium, a Quebec based producer who raised $80 million from SoftBank last year, now claims it needs an extra $283 million to finish a $830 million mining project. When the CEO was interviewed last year about SoftBank's stake in the company, he claimed he had "never heard of SoftBank" before they invested in his company.

Shares of Nemaska are down 75% since SoftBank's investment.