BATTERY MATERIALS BLOG: Why is cobalt trading below $20/lb?
Several bullish supply-side announcements have hit the cobalt market over the past few months but prices have fallen by 44% since the start of the year.
At about $15 per lb, Fastmarkets’ benchmark standard-grade cobalt price stands at levels last seen just over two years ago when the market had started a precipitous rally up to near 10-year highs.
That increase had arisen from the battery and electric vehicle (EV) boom and anticipated demand for cobalt associated with the automotive revolution.
Cobalt’s strong demand profile remains intact - if anything, it has strengthened while EV adoption gains pace.
In China, which has been driving the pace of EV development and adoption, new energy vehicle (NEV) sales are increasing while total passenger vehicle sales have been falling over the past seven months. NEV sales in the country were up 138% in January when total sales of passenger vehicles were down 17.7% in the same comparison.
On top of that, the shift to nickel-rich NCM811 batteries, which contain less cobalt per cell than their predecessors, is slower than had been foreseen at times last year, while higher driving ranges require bigger battery packs and therefore more cobalt-containing cells per battery.
And in the past few weeks ERG has suspended production of cobalt metal at its Chambishi refinery in Zambia while Boss Mining, which has traditionally provided its feed, is on care and maintenance.
Additionally, exports from Katanga - which had been ramping up last year, with anticipated production to of more than 30,000 tonnes per year of cobalt hydroxide from 2019 - have been suspended and material stockpiled since November pending treatment for excess uranium levels.
Yet cobalt prices are still falling. The reason for that lies with increased supply coming to the market while EV-related consumption is still taking off.
New production from Katanga - and from ERG’s RTR project, which is ramping up to 14,000 tpy - are two large supply increases within a short period that were bound to cause a supply surplus. Specifically, those supply-side increases come in the form of hydroxide, which can feed the battery sector.
Against what had been resiliently high metal prices and plentiful availability of hydroxide with relatively low payables (the percentage of the benchmark metal price buyers pay for cobalt intermediates), chemical buyers have been opting to buy hydroxide and salts to cover much of their needs rather than metal.
That led to an aggressive and protracted mating season for cobalt metal in late 2018, where sellers offered discounts to Fastmarkets’ standard-grade cobalt price of 8-10% while they were fighting to offload metal stocks. In comparison, buyers had accepted no discount, or even slight premiums, during the previous year’s contracting period.
Still, aggressive discounts were not enough to entice consumer buying. In a market that, at the time of last year’s inaugural Fastmarkets Battery Materials conference, many believed was heading to $50 per lb or even higher, consumers had overstocked into the rally, leaving them to work through high-priced inventories over the course of the second half of the year.
Justifiably wary of another substantial price move on the downside, consumers have held back from the spot market for cobalt metal - the volume of which dictates the global reference price - as much as possible since mid-2018.
Consequently, 2019’s uncommitted cobalt stocks have found limited outlets so far. Compounding that fact is some of the overhang lies in by-product producers’ hands, meaning less pressure to maintain a margin above a cobalt-specific cost of production and more pressure to get the material off their books.
Consumers have also been destocking into the price weakness - a natural phenomenon but one contributing to a sense of weaker demand and the need to offer aggressively to secure the scant consumer business of recent months.
It is possible that the market is close to being oversold. With strong EV sales in mind, battery cathode manufacturers will need to restock. But with the metal excess for 2019 put in the region of 2,000-3,000 tonnes by active market players last week and with at least some of that material in weak hands, the floor needn’t necessarily prevail at $15 per lb - the point at which some production has already become unviable.
The total cobalt market remains in a surplus of about 8,000 tonnes in 2019 on paper, according to Fastmarkets’ battery raw materials research team, compared with a 2,000-tonne surplus in 2018. With Katanga units being stockpiled, actual supply to the market will be less than that, although demand can probably be met from other stock for now (ample supply is believed to be sheds in South Africa and China).
At the same time, the fundamentals that prompted cobalt prices to rally to 2018’s multi-year highs still exist. Fastmarkets expects EV penetration at 15% by 2015, with a 35% CAGR between 2017 and 2025.
The realization of the past few months has been that that rally was too early to be backed up by real and effective demand from the battery and EV sector. The hype was nonetheless met with a huge supply response, which the market now has to absorb.
At next month’s Battery Materials 2019 in Hong Kong, Fastmarkets’ price reporting team will look at pricing trends for cobalt from 2018 to 2019 as well as giving our forecast for prices in 2020. Visit metalbulletin.com/events/batterymaterials to find out more.
What’s next in the blog?
- Nickel: Interesting times ahead
- Lithium: Little room for established producers to ignore China
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