ANTAIKE BATTERY MATERIALS CONF: Have cobalt prices bottomed out in China?
Chinese cobalt prices have stabilized recently, against a persistent downswing in international cobalt prices that made market participants believe the blue metal and its downstream salts’ prices have bottomed out in China, creating mixed views in the market.
Metal Bulletin heard different voices at Antaike’s Battery Materials Conference held in Shangyu, China on July 18-20.
China’s cobalt market looks healthy, despite recent declines
Cobalt prices look like they have bottomed out in China, Aaron Cao, president of Shanghai Greatpower told delegates.
Recent negativity stemmed from weaker seasonal demand, a squeeze on credit in China, and inventory sales during a falling market. Prices for Chinese domestic cobalt metal, min 99.8%, fell to lows of 520,000-540,000 yuan ($76,826-79,781) per tonne in early July, from highs of 675,000-690,000 yuan per tonne in early April, but have stabilized over the past week while international cobalt prices continued to cool.
“We have seen deleveraging and destocking but I believe this period is coming to an end – we’ll see a new round of purchasing in August,” Cao said. “The relationship between supply and demand is quite healthy… the source [of cobalt] is pretty concentrated and demand is strong overall.”
Nothing has fundamentally changed in the cobalt market since prices started to fall, he added.
“When the market is falling, it turns a blind eye to the positive, and when it is rising, it turns a blind eye to the negative,” Cao told delegates.
In addition, Chinese suppliers do not have much in inventories, at least for the domestic Chinese market, which has laid the foundation for a rebound, market participants told Metal Bulletin on the sidelines of the conference.
Visible cobalt stocks fell sharply in recent months, with inventories under the Wuxi Stainless Steel Exchange, the only available platform for cobalt metal futures in China – cobalt metal stocks in its sheds dropped to slightly above 300 tonnes in June from over 1,000 tonnes in March, according to market participants.
A limited number of metal producers in China shifted the weighting of their market share from domestic to overseas due to the significant price differentials between Chinese and international prices since the middle of last year, which restricted availability in the local market.
After a sharp descent in international cobalt prices the price gap narrowed, yet was still as wide as over $6 per lb on Friday July 20 when Metal Bulletin assessed the Chinese cobalt metal price at 515,000-550,000 yuan per tonne (approx. $29.65-31.67 per lb China VAT-free), and the low-grade cobalt benchmark at $36.30-38 per lb on July 20.
China exported 925 tonnes of cobalt in the first quarter of 2018, compared to 265 tonnes over the same period last year, according to China Customs data.
It is still unclear how many Chinese cobalt suppliers sold to overseas buyers in the second quarter because the country’s customs department stopped publishing trade data for a majority of its refined metal and raw materials since May. Yet, market participants that presented at the conference estimated there would be equal or larger outflows in the second quarter.
“Major Chinese producers have offered sparse supply to the spot market in past months. I heard one producer in China sold less than 30 tonnes of metal in the domestic market against its monthly production of over 150 tonnes. The producer couldn’t hold the rest of the metal in warehouse, could it?” a first trader said.
Furthermore, the high raw materials’ imports costs will lend support to spot Chinese quotations, especially for cobalt sulfate, which otherwise is likely to boom again on a looming consumption peak from the electric vehicle (EV) sector during the second half of the year.
“The production costs for cobalt sulfate have exceeded 100,000 yuan per tonne, which means a majority of producers have lost money. Therefore, the Chinese cobalt sulfate price may have seen its bottom,” the first cathode materials producer said. “Whether it will rebound or not is purely dependent on consumption.”
“The Chinese market is acting of its own accord, its own fundamentals, separately to the international price. It seems like it’s either bottomed out, or at least that it’s almost there,” a second trader said, adding that there are even opportunities to play the long game.
“You could buy cobalt now and sit on it for a couple of years and still make a lot of money. Of course, for all but the investment funds that’s not going to be practical, but the forward picture is still strong,” he told Metal Bulletin.
Consumptions, invisible stocks set hurdles
On the contrary, quite a few conference delegates told Metal Bulletin it was far too early to tell if Chinese cobalt prices had dipped as the near-term outlook for consumption was still dim.
“Over one-third of cathode materials producers are relying on long-term contracts to get their feeds,” a second cathode materials producer said. “On the one hand, they have tight credit lines to make any extra spot procurement; while on the other hand, battery consumption has been sluggish for a while.”
Muted buying appetites for cobalt raw materials are another indicator of lackluster downstream consumption.
Spot quotations for cobalt raw materials, including cobalt concentrates and intermediates, have dropped quickly on retreating buying interest.
“As consumption is so weak, cobalt producers have tried to minimize their stocks of raw materials,” a cobalt sulfate producer told Metal Bulletin. “Refineries are even not interested in buying cheap cobalt scraps as feed.”
Additionally, conference delegates showed concern toward invisible cobalt stocks in China.
“China cobalt prices might fall again as it is difficult for the market to manage risks such as weak consumption and high invisible stocks,” a third trader said.
“Actually the stock level for both cobalt metal and salts in China is still high; maybe traders indeed are short, but producers and investors still have quite a few stocks that they might want to check into the market sooner or later,” a fourth trader said.