Major Chinese cobalt smelters are yet to sign annual raw material supply contracts with global miner Glencore, according to market participants.
Metal Bulletin reported in February that Glencore was the only major miner left to conclude annual intermediate deals with Chinese buyers, and deals had been expected to be inked in March.
But discussions have continued into April between Glencore and Chinese companies, sources said.
“The Chinese are not going to book imminently,” one source active in the market said.
“Talks are going on between Glencore and the Chinese, and no one is budging,” a second market source said.
Parties continue to thrash-out terms, with neither in a hurry to ink deals.
Glencore still has some 2013 contracts outstanding, and the Chinese are sitting on some stocks, sources noted.
“We want raw material,” one official at a Chinese smelter said.
“[But] we still have raw materials for at least several months, and we can also buy cobalt salt from the market,” he added.
Metal versus intermediates
As intermediate negotiations continue, talk has turned to metal.
The cobalt complex as a whole is considered tight, although the metal market remains in surplus, which has put pressure on prices.
Subject to investment, cobalt intermediates can be substituted with metal. Broken cathodes and briquettes would be preferable for battery purposes as they leach well, sources said.
For some time, as metal prices languished, Chinese cobalt buyers have been considering purchasing metal, as opposed to traditionally cheaper intermediate products, to make their salts.
Glencore is now discussing new contracts with Chinese buyers, and is proposing better terms for those buying metal as well as intermediates, sources said.
“I think Glencore sees total supply/demand as very healthy, but with increased production from Sumitomo and Ambatovy, there is a lot of metal around,” the second source said.
“If Chinese buyers each buy 10% metal, instead of intermediates, that’s around 4,000 tonnes, which would remove the metal oversupply,” the source added.
“They’re offering better terms if you’re taking metal,” the source said.
Glencore declined to comment.
However, Chinese buyers are keen to continue purchasing intermediates.
“There is some resistance to buying metal. They are used to intermediates and an investment needs to be made by most of the Chinese,” the first source said.
Many market sources remain hopeful that Chinese buyers will be tempted to purchase metal, easing the pressure on the tight intermediate market, and soaking up surplus metal.
If Chinese consumers shift their purchase patterns to buy large volumes of metal, this could drive up metal prices, which have been languishing in the low to mid teens for the past few years.
Prices have rallied over the past few months, on limited supplies from major producers like ENRC.
Low-grade cobalt is trading at $14.10-15 per lb, up from $11.80-12.90 at the start of the year. This is a far cry, however, from the April 2010 levels of around $19.50-23 per lb.
Many major Chinese cobalt smelters have not yet signed annual raw material supply contracts with global miner Glencore, according to market participants.