Chinese cobalt companies under pressure due to dollar strength

Many cobalt companies in China are under increased pressure due to the strengthening US dollar, as they buy raw materials on a dollar basis, and sell some or all of their product domestically.

The increased cost of raw materials is having an impact on smaller cobalt companies in particular, but some major companies in China are also concerned, sources said.

“When the yuan was appreciating it was favourable for us to import cobalt raw materials. We are thinking about ways to work around the stronger dollar now, but it seems there are no better options so we have to import. Cobalt resources are not in our hands,” one major producer said.

Larger players are, however, able to benefit from the strong dollar in some instances by exporting finished products.

“The foreign exchange rate movement will have some effect on our company’s financial costs but we both import and export, so that should offset losses,” a major cobalt salt maker in China told Metal Bulletin.

“Most major producers in China, like Jinchuan and Huayou, both import and export and should be able to neutralise volatility in exchange rates. It is the smaller players importing raw materials who will suffer,” a major cobalt producer said.

“Exports account for about 50% of our sales while 75% of our product cost is raw materials. We paid for 90% of our raw materials in dollars. If the dollar gets stronger, we may consider buying less but it shouldn’t result in changes in company’s purchase policy as irrespective of costs we have to import most raw materials,” the producer said.

“You can’t hedge all the foreign exchange rate risks through exports. We can export about one-third of our products but we have to import almost 100% of our raw materials,” another smelter said.

Many primary cobalt product makers, like chloride cobalt and oxide cobalt makers who rarely export, will face more cost pressures.

“When [low grade] cobalt metal prices are below $12 per lb, Chinese cobalt salt makers can’t lower their prices anymore, as that would already be squeezing their cost levels,” a third major producer said.

Some market participants said cobalt salt makers, especially small ones without upstream resources or export channels, will be washed out in the coming years as a result.

“That would be the trend as for smaller companies making primary products it would cost a lot to transport raw materials from Africa to China,” a north China major producer said.

Some others played down the importance of foreign exchange rates for the cobalt market.

“The cobalt market is not a big one and cannot be compared with bulk commodities like copper concentrate. We won’t bother much to look at foreign exchange rate changes,” a major trader, who has been importing both copper and cobalt raw materials, said.

“I don’t see the yuan depreciating sharply against the dollar for the near term,” the trader said.

China imported $16.9-billion worth of copper ore and concentrate and $95.6-billion worth of iron ore last year. 

editorial@metalbulletinasia.com