MARKET FORUM: Cobalt

Cobalt prices continued their decline last week, leaving expectations among market participants distinctly depressed.

Prices for cobalt are hovering at their lowest levels for more than three years, at $10.90-11.85 per lb for low grade and $11.20-12.80 per lb for high grade.

Spot prices have fallen almost continually since September 26, while the cobalt contract on the London Metal Exchange has been trading at its lowest price ever.

Recent news that Ambatovy, a new source of cobalt, will be joining the market as early as this quarter, accelerated the downward move. 

The Madagascan operation is positioned to become the world’s largest lateritic mine. 

The nickel-cobalt project is expected to eventually be capable of producing 5,600 tpy of refined cobalt, and has an estimated lifespan of more than 25 years.

This, combined with news that trading houses Darton Commodities and Phoenixx International will be responsible for marketing the cobalt, has led many participants to suggest that competition will be rife among producers in 2013, and that prices will remain under pressure.

Discounts on long-term cobalt contracts are predicted to show year-on-year growth in 2013, as a result of suppliers competing for business in a falling market. 

Long-term formula cobalt business is often signed based on the Metal Bulletin low-grade-low price, either flat, minus a discount, or plus a premium.

“It’s a fight to the death on formula and the discounts are typically between 4% and 6%,” one market participant said.

Metal Bulletin sources were, however, split on the pricing situation, with some claiming that recent decreases were justified.

Others said the market’s reaction had been overdone, particularly considering the limited volume of Ambatovy cobalt that is likely to enter the market in the near-term.

Sources also noted strong demand for raw materials, and potential cutbacks in metal production elsewhere.

Chinese cobalt concentrate buyers have been struggling to source raw materials, which producers said could translate into higher demand for metal and a sharp rise in prices. 

Below are some comments made by market participants in recent weeks:

“The Ambatovy thing is really overdone, taking into account tonnages and possible cutbacks by other producers.”

Is this true? Were the recent price falls justified or has the market run away with itself? Will producers be cutting back metal production in 2013?

“Either demand is really picking up, or we have reached a price level where Chinese customers will buy metal instead of concentrates.”

Is metal becoming more attractive to Chinese consumers? What are your expectations for battery demand in 2013? 

“Traders are aggressive. Producers are not competing at these prices.”

Are traders driving the move lower? Are producers willing, or able, to sell below $12 per lb? Will cobalt producers be able to survive a sustained period of sub-$11 pricing?

“The market is moving towards $8 per lb.”

Where, earlier this year, $12 was seen as the floor price by many, some have been left wondering whether this floor has fallen to $10 or even $8. Is $10 the new $12, or is there the chance of an upturn in the fourth quarter? Where will prices be in November 2013?

Metal Bulletin is opening this subject up for discussion. Let us know what you think by email, or by hitting the Add Comment button at the top of this article.

Fleur Ritzema
fritzema@metalbulletin.com
Twitter: FleurRitzema_MB