The Economics of MP35N
As I am sure you will know, the MP35N we hold in our stock is made up of approximately 35% nickel, 35% cobalt, 20% chrome, and 10% molybdenum. We were intrigued therefore, why the price of cobalt has risen by 87% in the past 6 months, while the price of nickel has declined by 22%, ferro chrome has risen by 18%, and molybdenum has increased by 2%.
From aesthetic to essential
Cobalt has been used for centuries to give a deep blue hue to pottery, paint and jewellery, but the answer for this volatility (and implications for the future) appears more than anything to be the huge growth in electric car development and production, and the fact that cobalt has become a crucial metal used in the production of batteries.
A BBC article (“Could you cope with smartphone rationing?” by Ian Hardy, Technology of Business reporter) recently estimated that about half of all cobalt demand now comes from the expansion of electric vehicle production and development worldwide. Supply of cobalt has not ke
pt pace with the increase in demand and basic economics explains the huge increase in price. Lara Smith, managing director of Core Consultants, a commodities researcher, said: “In 2016, the supply of cobalt was about 104,000 tonnes and demand was about 103,500. The hybrid and electric vehicles are in a nascent growth phase, so as we continue along this track we expect there to be a greater and greater deficit.”
Reclaiming used resources
Only 2% of cobalt is mined directly – 98% of it is produced as a by-product of nickel and copper mining. About two thirds of the supply comes from Africa’s Congo region. However, as the price of metals used in battery production rises, there will be a growing interest in increasing supply via recycling of used batteries. Apple is a leader in this field, using robots to disassemble used iPhones to recover and reuse many of the materials used, such as cobalt, indium and gold. But will this be enough to level equalise demand and supply?
The future of MP35N
The implications for us: the price of Cobalt makes up about 15% of the cost of MP35N. A rise of 87% in the cost of Cobalt therefore will lead to a not insignificant increase in the price of MP35N. The value proposition of MP35N based around the chemistry and manufacturing process still make it an alloy in demand for applications requiring high strength, hardness and corrosion resistance in components that will last far longer than those made of “cheaper” alloys like Alloy 718. However, cost cannot rise without implications on the demand and supply of MP35N itself, and the availability of cobalt will become yet another “interesting” aspect to consider when we decide what metals to stock in future.
Any further questions?