2017 REVIEW: Battery boom, brand developments, artisanal concerns prompt Metal Bulletin cobalt spec review

Last year was a watershed for the cobalt market; it was a year that brought some of the biggest developments in the history of this minor metal, catapulting it into the spotlight and onto the front pages of mainstream news outlets worldwide.

A focus on human rights violations in the Democratic Republic of Congo (DRC), where the majority of cobalt is still mined, prompted more and more companies to scrutinize their own supply chains.

It was also the end of an era – some of the world’s best-known metal producers halted production, at least of a few types of cobalt, while sources came on-stream or back on-stream in China and Russia.

And the market became increasingly sophisticated while it financialized, with investors and hedge funds piling in, encouraged by strong price expectations. Investment vehicle Cobalt 27 acquired several thousand tonnes of physical cobalt over the year.

And when it repeatedly increased the size of its balance sheet in December and the volume of cobalt metal it held, it did so with a specific aim: To enable it to do deals with physical producers.

Then, of course, there were the prices. An anticipated battery boom, fueled by the electric vehicle (EV) revolution, sent prices soaring by more than 150% on the high end of the low-grade assessment by mid-December after consumers, traders, hedge funds and other investors scrambled to stock up or gain exposure to the blue metal.

And pricing structures also came into the spotlight.

These issues, as well as calls from the industry, prompted Metal Bulletin to launch a cobalt price specification review, which remains open to anyone with exposure to the blue metal.

Here, we look at what was behind this landmark year in the cobalt market, and why Metal Bulletin has taken this moment to consult with the market on some major and minor changes to its cobalt specification.

Production shifts: sources came on-stream or back on-stream in China, Russia
Production shifts seen this year, and prior to this year, have meant reduced supplies of certain types of cobalt metal, notably ingots and broken cathodes, which are both considered under Metal Bulletin’s low-grade specification.

In comparison to the increasingly tight low-grade, the high-grade market has been relatively well-stocked in 2017. Click here for today’s specification. Recent production developments have also meant the end of production of typical 99.3% cobalt.

While production of cut cobalt cathodes has ramped up this year, with Nornickel now producing a cut cathode instead of its ingots, and as broken cathode production has been shrinking dramatically globally, Metal Bulletin has observed a reduced differential between low-grade cobalt metal (ingots and broken cathodes and some briquettes), and traditional high-grade brands.

In the past, low-grade cobalt typically traded at a discount to high-grade (cut cathodes, rounds and some briquettes). But in 2017 the two grades traded mostly on a par with each other. Some sources even expect low-grade prices to exceed high-grade prices soon.

This reduced differential has been exacerbated by the strong battery expectations, particularly as broken cathodes and briquettes are popular in this sector. Cut cathodes and rounds are typically used in the high-end alloy sector, a relatively strong industry, but one not gaining the same attention or growth forecasts as EV.

It may, of course, not be the case that low-grade prices eventually exceed high-grade, especially not imminently given the recent purchases by Cobalt 27, which several sources suggest were mostly high-grade brands, and which has brought back the high-grade premium over the past week. But it remains a possibility and something to which Metal Bulletin will be reactive.

Low-grade cobalt prices began last year at $14.25-14.95 per lb. On December 13, just 11 months later, they were trading at $32.85-36; the most recent dramatic price increase was the result of large purchasing by Cobalt 27. High-grade prices began 2017 at $14.40-15.00; in mid-December, they were sitting at $35-36.50.

Behind the dramatic almost continual year-long rally were expectations of a battery boom, prompted by EV manufacturers making public pledges to grow their production and supported by government initiatives to boost “green energy.”

London Metal Exchange cobalt prices also surged in 2017, although notably spent most of the second half of the year trading at a significant discount to Metal Bulletin prices. Lower LME prices than Metal Bulletin prices have not often been the case over sustained periods until this year.

Some market participants attributed this trend to a difference in specification between the two pricing providers. The LME lists certain brands that are not included under Metal Bulletin’s specification, with Chinese producer Yantai Cash among those listed on the LME but not Metal Bulletin.

Sources and press reports have suggested that metal produced by Yantai Cash Industrial, a China-based producer, have appeared on the exchange. Sources claim that some of the company’s unrefined cobalt from the DRC carries a higher risk of using child labor.

Such claims of unethically sourced cobalt being held on the exchange prompted calls later in the year for a crackdown on producers delivering onto the exchange, something which the LME is now looking to address.

Yantai Cash has, meanwhile, said it will demand suppliers show that their raw materials are not produced with child labor after the London Metal Exchange set a deadline for companies that ship to its warehouses to spell out efforts to combat the problem, according to press reports.

Shandong-based Yantai is working with China’s Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters and shipping services firm RCF Capacity Planners to audit its supply chain, Liu Xiaohan, a manager at the company, reportedly said.

“They will help us set up a responsible supply chain system,” Bloomberg quoted Liu as saying. ‘‘We are going to set up a code of conduct and we will ask our suppliers to clarify the source of raw materials we buy.”

Specification review
Recent cobalt developments, including those related to the high-grade/low-grade balance, have resulted in structural changes to the cobalt market, and potential further changes in years to come.

This has prompted Metal Bulletin, which publishes a twice-weekly cobalt price widely used in contracts across the cobalt supply chain, to launch its cobalt price specification review, in which it addresses questions about its own inclusion of new DRC-origin brands, as well as other issues.

The review aims to ensure Metal Bulletin prices reflect commonly traded, ethically-sourced, standard specification cobalt. It further proposes to provide helpful tools, such as indexation and premiums and discounts at a later date, to help market participants manoeuvre in this rapidly changing market.

Metal Bulletin would like to invite anyone with exposure to the cobalt market to contribute to its two-stage review. To do so, click here for more details.

And if you’d prefer to use a survey to address questions related to Stage 1 of the consultation, please do so by clicking here.