2017 REVIEW: Price differentials cut China cobalt metal imports; exports surge
China’s cobalt metal trade flows in 2017 took a reverse path to the previous year, mainly due to the price differences between Chinese and international cobalt metal prices.
In the first ten months of 2017, a total of 2,555 tonnes of cobalt were shipped to China, down 23% year on year; meanwhile, exports soared by 526% on a yearly basis to 1,903 tonnes, beating export volumes for the whole year in 2016 and in 2015, according to Chinese customs data.
Throughout 2016, the Chinese market witnessed a larger-than-ever cobalt trade flow from overseas suppliers due to supply constraints in the local market - a direct result of the China State Reserve Bureau’s (SRB) stockpiling.
Late in 2015 and early in 2016, China’s SRB bought a total 5,000 tonnes of cobalt from Chinese producers – 2,200 tonnes in two purchases in the fourth quarter of 2015 and the remaining 2,800 tonnes in February 2016.
The imports boom extended into 2017 and reached a peak in February when imports surged to 630 tonnes - a record monthly high since March 2014, according to Chinese customs data.
The positive import arbitrage between Chinese and international cobalt prices subsequently widened to as high as almost 28,000 yuan ($4,230) per tonne in mid-January 2017.
The turning point came late in March, however, when imports started to fall rapidly and exports rose sharply - a trend that continued in the following months.
In the third quarter of 2017, Chinese cobalt metal imports fell to 368 tonnes - less than half of what they had been in the second quarter; meanwhile, exports more than doubled to 866 tonnes, according to Chinese customs data.
Source: China Customs
Price differentials lead to watershed
The watershed came late in March once the price differentials between Chinese and international cobalt prices turned negative.
China’s cobalt metal price had been under pressure due to weak local fundamentals and the under-performance of local futures prices, even though international prices were rising steadily.
The largest negative arbitrage came on August 2 when China’s cobalt metal, min 99.8%, price struggled at 393,000-415,000 yuan per tonne.
Meanwhile Metal Bulletin’s low-grade free market cobalt price, which is widely recognized by Chinese market participants as a basis to evaluate raw materials costs, rose to $28.25-29.75 per lb, causing the average price differential to widen to 25.68% when taking Chinese VAT into consideration, according to Metal Bulletin’s calculation.
Although the price differentials then narrowed, it was still about $5,000 per tonne lower than the international low-grade benchmark on December 8.
Chinese producers turn to exports
While the price gap between Chinese and international cobalt metal remains wide and domestic Chinese consumption slow, Chinese cobalt metal producers intend to raise their exports to increase sales and boost profits.
Jinchuan and GEM-KLK are two producers that have regularly shipped metal outside China. Jinchuan is understood to be exporting more metal than it has done in the past few years, market sources told Metal Bulletin.
“Jinchuan is seldom making offers in the local market,” a market source said.
“We don’t have many stocks to offer to the local spot market and we have quite a large [volume] of cobalt metal to ship outside China at the moment,” a source at Jinchuan said.
Yantai Cash and Huayou Cobalt, two producers that had not previously exported, have started to ship material from China over the past few months, market participants told Metal Bulletin.
“Over half of our monthly cobalt metal production is exported,” a source from Huayou Cobalt said.
Cobalt imports will remain subdued in the early stages of 2018 while exports will remain strong, market participants believe.
“As the gap between the Chinese and international cobalt price is narrowing and bullish sentiment toward the cobalt price outlook has strengthened recently, importers will resume some buying,” a Chinese trader said. “Imports of cobalt metal next year will be larger compared with the second half of this year and exports will stay strong as a result of weak demand in the local Chinese market.”
“China’s cobalt metal price in the near term is less likely to catch up with the international price; therefore, we will keep seeing more exports and fewer imports from China,” an East Asian consumer source said.