If you were to compare the cyclical nature of commodities with fashion, the equivalent of skinny jeans – outmoded for the moment – would have to be cobalt. Once all the rage, nowadays Glencore (GLEN) and others are considering holding back supply to raise prices. Other metals commonly mined but trading weakly at the moment, especially compared with highs maintained by copper and gold in recent years, include platinum and palladium, zinc and vanadium.
Cobalt
There are two connected reasons why the cobalt price has tumbled. Firstly, lithium-ion battery manufacturers have cut the amount of cobalt needed in a battery, down to zero in some cases – Tesla (US:TSLA) has shifted to cobalt-free batteries for half of its cars. Secondly, new supply from Indonesia has hit the market.
The cobalt price drop in the first half knocked $800mn (£628mn) off Glencore’s earnings. The impact was also felt at Ecora Resources (ECR), the royalties company that owns a share of production at the Voisey’s Bay mine in Canada. Its first-half revenue from that royalty plummeted due to weak prices (a mining slowdown also had an impact).
“We still see the long-term fundamentals of cobalt being attractive. We see synchronised demand, ultimately both in electric vehicles (EV) and non-EV, propelling that business positively in terms of demand,” said Glencore chief executive Gary Nagle earlier this month. A new report by the International Energy Forum notes the consensus is for demand to rise from 135,000 tonnes in 2025 to 213,000 tonnes by 2030.
In the short term, options for boosting the price are limited at a time when the metal is in oversupply.
As cobalt is a byproduct, meaning it is mined alongside other metals, there are no pure cobalt operations to shut down, but Glencore has previously put less into the market to shore up prices. There are no pure-play cobalt options available; Ecora is the most exposed in the case that the metal rips upwards again. Its royalty portfolio is shifting from being reliant on coal to a mix of base metals.
PGMs
The next unloved metal ripe for a turnaround is platinum. London-listed Tharisa (THS) and Sylvania Platinum (SLP) both mine the precious metal. They both also mine palladium, which has been the stronger of these platinum group metals (PGMs) in recent years, although its price has fallen by almost half in the past year, to $1,250 an ounce.
The outlook for this market is driven by automotive technology – PGMs are used in exhaust systems, which electric vehicles don’t have. “We sense the positive news surrounding electric vehicles, including price cutting by Tesla in China... have weighed on palladium,” said HSBC commodities analyst James Steel. He argued that while platinum recently marked a new 2023 low, it was “fundamentally undervalued”.
Professional investors don’t agree. The most recent Commitment of Traders report, which tracks hedge fund positions in derivatives, has significant net short positions for platinum and palladium. The latter has the lowest long-to-short ratio out of all the major commodities in the report.
But analysts at Liberum see the palladium price rising slightly next year to $1,500 an oz, albeit they see further weakness in 2025. The investment bank’s platinum forecast is for a minor improvement into next year, to around $1,150 an oz from the current level of around $900.
Zinc et al
As flagged last week, zinc is another unloved metal. There are no primary zinc miners, however, so South32 (S32) and Fresnillo (FRES) – another recent focus in our Ideas section – are the shares to turn to on this front. The metal's turnaround case is the usual story: with lower prices comes lower production or stockpiling, and then prices go up. Analysts at investment bank Bernstein duly see zinc rising again: “We believe zinc prices have likely bottomed,” they say. Outside the London market, there is the Swedish miner Boliden (SW:BOL), which makes around a fifth of its cash profits from the metal.
Vanadium is largely sold into the steel industry as it is used as a strengthening agent. Its energy storage credentials come from vanadium flow batteries, which are shipping-container-sized bits of kit. Industry hype saw the price of the metal and those mining it surge five years ago. Bushveld Minerals (BMN) traded as high as 48p in 2018, but now sits at just 2.5p. Mining difficulties and a lack of advancement in the vanadium battery industry have seen its market capitalisation waft away. Buying here would be more of a gamble than the other metals, but as a traditional Aim punt this could have legs.
There is a slight caveat to this collection of unloved metals, in that cobalt has already started gaining in price again, as has zinc. A question mark remains over PGMs because of the gloomier car market conditions. The industry touts the need for platinum in hydrogen technology, yet this is a long way off being material for either miners or the precious metal’s price. But as above, fashions change incrementally until the point where they seem to be everywhere. A turnaround could sneak up on us quickly.
