Chinese cobalt sulfate continues to weaken, this time taking cobalt hydroxide with it
Constrained EV demand causes further Chinese cobalt sulfate price weakness, which has started to push hydroxide payables lower, despite additional supply issues affecting exports from southern Africa
The cobalt market is being pushed and pulled by numerous cross currents. Lockdowns in China, in an attempt to contain outbreaks of Covid-19, are constraining demand for cobalt sulfate, but supply has been hit too. Floods around the Durban area in South Africa have compounded existing logistics issues with shipments from Durban to Asia all but halted.
Cobalt sulfate price drop
The cobalt closest to the battery industry, cobalt sulfate, has seen prices drop as manufacturing activity has slowed.
Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China, was 98,000-100,000 yuan ($14,517-14,813) per tonne on Wednesday May 18, down by 2,000 yuan per tonne from 100,000-102,000 yuan per tonne on May 13.
The latest assessment is also down by 20,000 yuan per tonne from 118,000-120,000 yuan per tonne on March 30, when the price started to trend downward.
Continuously weak downstream demand in China has put pressure on the cobalt sulfate market since late March, and most lithium-ion battery precursor materials producers in the country have reduced their operating rates by at least 30% amid the latest outbreak of Covid-19, sources told Fastmarkets.
Cobalt sulfate producers have also cut production or halted it entirely because of poor consumer buying and the high prices of battery raw materials, especially for lithium. These prices have also seen some push-back by cathode and battery manufacturers who were cutting production as well.
Peak lithium hydroxide prices ex-works China were 500,000 yuan per tonne in late-March, these were up 111% from the start of the year, and up over 1,000% from the low seen in 2020, but nickel prices at 220,000 yuan per tonne, were up 50%, compared with their average during the fourth quarter last year, and cobalt sulfate prices at 120,000 yuan per tonne in March, were up 34% over the same period.
“China’s current output rate of cobalt sulfate has dropped by more than 50%, with majority of producers having ceased production, and some others cutting it by half,” a cobalt trader said.
Moreover, increasingly lower offers for cobalt sulfate produced from scrap have emerged and brought downward pressure to the market, which further slowed demand for sulfate produced from cobalt hydroxide (regular-fed material).
Cobalt hydroxide payables soften amid broader downtrend
As a result of the persistent downward trend in cobalt sulfate prices in China, buyers of cobalt hydroxide have been reluctant to accept higher prices. The sluggish market conditions have further weakened demand for cobalt hydroxide, despite China-bound deliveries of the raw material from South Africa still being affected by logistical issues.
Fastmarkets’ cobalt hydroxide payable indicator, min 30% Co, cif China payable of Fastmarkets’ standard-grade cobalt price (low-end), was at 80-85% on Wednesday May 19, widening downward from 82.5-85% on May 13. The latest calculation is also down by 4-8% from 88-90% on April 13.
Many consumers said they will not buy any cobalt hydroxide given the current sluggish downstream cobalt sulfate market and elevated production costs, and they expected much lower payables to balance these current losses out.
“We just do not dare to buy any cobalt hydroxide right now because cobalt sulfate prices fall so quickly [and] we don’t know when the market will stop falling,” a cobalt hydroxide buyer said.
Some cobalt hydroxide sellers also noted that it is hard to conclude any spot deals at present because the decline in cobalt sulfate prices has outpaced that of cobalt hydroxide prices.
Prices further upstream for cobalt have remained resilient, in part due to healthy demand from Europe and the US across various end-use sectors.
The disconnect between humming Western economies and China’s lockdown-stricken economy has led to margin concerns, however.
“Nothing has been moving in sync the past few months,” one cobalt hydroxide producer said.
Fastmarkets assessed the price of cobalt standard grade, in-whs Rotterdam at $39.70-40.25 per lb Thursday May 19, flat day on day. The cobalt payable indicator percentage is pegged to the low end of the standard grade price.
Cobalt hydroxide consumers in the region spurred further bearish sentiment by offering from their stockpiles to generate cashflow, sources said.
The duration of lockdowns - and whether demand will return once lifted - remains uncertain.
“It’s a temporary issue,” a cobalt hydroxide trader said. “But will it last one month, three months or six months?”
Some market participants expect the end of lockdown in China to help boost demand.
“As and when the China lockdown ends, the economy is going to kick into gear big time, very likely supported by government stimulus,” a second producer said. “Demand will resume, and the market outlook will suddenly look very different.”
Others say they remain skeptical demand will return swiftly, with the potential for rolling lockdowns across various cities in the country dampening end consumer demand. Timely government economic stimulus is also not guaranteed.
While China’s collapse has so far been isolated to the region, market participants note the bearish sentiment could spill into the West.
Trucking and shipping issues
Hydroxide sellers maintain that their availability remains extremely tight due to logistical bottlenecks all the way from the supply chain in Africa to the unloading of cargoes at Chinese ports.
Market participants said logistical bottlenecks in the area include long trucking queues in and out of the Democratic Republic of the Congo and tight shipping container availability.
A flood in Durban, South Africa in April has also caused major disruptions; Glencore declared force majeure on Friday April 15.
Should lockdown end while logistical bottlenecks in Africa remain, market participants told Fastmarkets they expect a rebound.
“When industrial activity restarts, buyers will turn around and realize their [domestic] stocks are depleted, and nothing is coming in from South Africa,” a cobalt hydroxide market participant said.
New energy vehicle output and sales also take a hit
China’s new energy vehicle (NEV) sales in April dropped to the lowest level in the past nine months owing to the production slowdown caused by coronavirus lockdowns in many cities in the country.
China sold 299,000 units in April, down by 38.3% month on month, although up by 44.6% year on year. China’s battery-only- EV sales were 212,000 units in April, down by 43.1% from the prior month, and up by 34.2% year on year. Plug-in hybrid (PHEV) sales were 68,000 units in the month, down by 22.5% from March, and up by 94.1% from a year earlier. In the first four months this year, the total sales were 1.556 million units, up by 112.2% year on year.
The volume of NEV output for the month was 312,000 units, hitting the lowest level in the past eight months, down by 33% from March, and up by 43.9% year on year. From January to April, China produced 1.605 million units of NEVs, up by 113.7% compared with the same period the year before.
Many manufacturers have kept production at a low level since early April. The situation is expected to recover in June or July.
Electronic battery applications feel the impact
The lockdowns in China, the global semiconductor shortage, high battery raw materials prices and the rise in cost of living around the world have all factored in to negatively impact demand and production of consumer electronics. Many of these are powered by lithium cobalt oxide (LCO) batteries. These electronic battery applications - not batteries used for EVs - account for 30% of cobalt demand.
No easy fix?
The Durban supply issues are not an easy fix, whereas when the lockdowns end in China it’s seen as more of a light switch for production. It’s far from business-as-usual, particularly with so much uncertainty around the duration of lockdowns in China. Could this mean further frustration in the market with the cobalt hydroxide payable price, which is exposed to many fundamentals at once? Will we see China’s NEV output and sales continue to fall?
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