[Introduction] In the second half of 2016, the price of cobalt metal experienced a rapid surge. From July 2016 to March 2017, cobalt prices rose by more than 125%, sparking a “cobalt” boom in the A-share market. Stock prices of cobalt-related companies such as Huayou Cobalt, Luoyang Molybdenum, and Greenmei all saw significant increases. 　

In the second half of 2016, the price of cobalt metal experienced a rapid surge, rising by more than 125% from July 2016 to March 2017. This surge sparked a “cobalt” fever in the A-share market, driving sharp increases in the stock prices of cobalt-related companies such as Huayou Cobalt, Luoyang Molybdenum, and Greenmei. Although this recent rise in cobalt prices has some speculative elements, the marginal increase in demand driven by lithium batteries—and the resulting fundamental changes—remain the primary factors determining the long-term trend of cobalt prices. Therefore, over the next two years, the improvement in cobalt’s fundamentals is highly likely, making companies along the cobalt value chain worthy of our continued attention.

　　Currently, nearly all of the world’s cobalt resources are associated with copper and nickel mines. Moreover, in 2017 and 2018, no large-scale new production capacity for copper-cobalt or nickel-cobalt mines was brought online globally. Due to cobalt’s byproduct nature, its supply is relatively insensitive to price fluctuations; therefore, the price elasticity of cobalt metal is more closely tied to market demand.

　　At the end of last year, the Ministry of Industry and Information Technology released a policy setting the minimum range requirement for pure electric vehicles at 300 kilometers—nearly double the current standard of around 150 kilometers. A longer range, in turn, implies a greater demand for batteries with higher energy densities. Since ternary-material batteries offer higher energy density than China’s currently mainstream lithium iron phosphate batteries and have greater potential for further improvement, the proportion of ternary lithium batteries used in new-energy vehicles is set to rise, ushering in a period of rapid growth for ternary materials. As a result, the demand for cobalt—the upstream material for ternary batteries—is also expected to increase significantly.

　　From a domestic perspective, relevant institutions forecast that China’s production and sales of new-energy vehicles will reach 700,000 units in 2017 and 2 million units by 2020. As the production and sales of new-energy vehicles rapidly increase, the upstream industrial chain will also expand quickly. Driven by the growing demand for ternary lithium batteries, cobalt metal will not only benefit from the high growth rate of the new-energy vehicle industry but will also experience even faster growth as its application ratio continues to rise. According to estimates by certain securities firms, from 2017 to 2020, China’s and overseas markets’ demand for cobalt used in ternary materials will grow at annual compound growth rates of 70% and 50%, respectively.

　　Eligible targets: Huayou Cobalt, Luoyang Molybdenum, Greenmei, and others.

　　Huayou Cobalt has secured upstream resources by acquiring the PE527 mine in the Democratic Republic of the Congo (DRC). The project is expected to reach full production in 2018. According to some securities firms, the company’s self-produced cobalt ore could reach 4,000 to 4,500 tons in 2017, achieving a self-sufficiency rate of 50%. As a result, the company will fully benefit from rising cobalt prices.

　　The Tanke mine in the Democratic Republic of the Congo, acquired by Luoyang Molybdenum, has an annual production capacity of 14,000 tons of cobalt concentrate. The rise in cobalt prices directly boosts Luoyang Molybdenum’s financial performance.

　　GEM Recycling recovers metallic cobalt from waste electronic products and uses it to produce cobalt powder and precursor materials for cathode materials. By establishing a closed-loop metal recovery system, GEM effectively avoids the impact of rising raw material prices, enabling its end products to gain a cost-competitive edge.