Spillovers between cobalt, copper and nickel prices: implications for deep seabed mining

Interaction between prices of nickel, copper and cobalt, the latter a by-product of nickel and copper in laterites and sulphite deposits, are analysed in relation to the price of oil, the US real interest rate and the real effective exchange rate of dollar using an autoregressive distributed lag model, to draw considerations on the profitability in the exploitation of polymetallic manganese nodules and cobalt crust in a mutually exclusive scenario. The results show co-movements between these variables through the presence of three long-run relationships. Focusing mainly on the cobalt/nickel relationship, it is shown that price of cobalt anticipates and exerts a negative effect on nickel while, as expected, the price of oil has a positive impact and the exchange rate a negative one. Conversely, the impact of the real interest rate is not significant. A Monte Carlo simulation is employed to forecast a robust average price of nickel in the long run, finding that under the actual stagnant economic conditions and an average price of cobalt of $40/kg (at 2000 price equivalence), the price of nickel will remain close to the actual, around $18/kg (at 2000 price equivalence). This result, coupled with the literature findings that in a mutually exclusive scenario, the prevalence of cobalt crust over manganese nodules can be shown only if the price of nickel is below $9/kg (at 2000 price equivalence), justifies why increased attention has been re-directed towards polymetallic nodules.