Chinese cobalt tetroxide market outlook clouded by high stocks, weak consumption, substitution trend
China’s cobalt tetroxide prices have been under pressure in the past few months from high inventories, weak spot demand and substitution by battery makers, market participants told Metal Bulletin.
Metal Bulletin assessed Chinese cobalt tetroxide prices (72.6% Co) at 340,000-360,000 yuan ($49,700-52,623) per tonne on Wednesday August 23, down more than 20% from two months ago.
The cobalt tetroxide price is a key indicator for the Chinese cobalt industry because the compound is widely used in the production of lithium cobaltate (LiCoO2) batteries used in electronic products, and accounts for approximately 60-70% of cobalt consumption in China, according to market participants.
In the past two years, Chinese cobalt tetroxide prices – when converted to full metal prices – have been higher than cobalt metal prices in most cases due to tighter supply of the salt.
However, the premium cobalt tetroxide carries over cobalt metal has narrowed rapidly since June, and most recently turned into a discount.
Consumers have been conducting minimal purchases during the summer, adding to bearishness in cobalt tetroxide prices, and resulted in increasingly high stocks.
In addition, consumers have taken a more watchful stance since Metal Bulletin’s low-grade cobalt benchmark, on which Chinese producers base cobalt raw materials import cost calculations, has taken a downward swing.
Metal Bulletin assessed low-grade cobalt prices at $33.20-33.70 per lb on Wednesday August 22, down 24% from its multi-year high of $43.50-44.25 per lb on April 25.
Consumers reported lowering their purchase volumes of cobalt tetroxide in anticipation that prices will continue to fall in the short term.
“We are increasing the frequency of procurements and reducing the amount purchased each time because there are still uncertainties in the price outlook,” a consumer said.
“The market is still far from recovered; therefore, most consumers intend to do back-to-back procurement – meaning unless they get orders from battery makers, they won’t risk building up stocks,” a second consumer said.
“We indeed saw some production disruptions in the middle of this year [due to an environmental crackdown] and resulting fall in supply, but stocks are still piling up at major producers’ warehouses this summer,” a producer said.
Battery makers turn to tolling agreements
The summer slowdown is not the only driver of muted spot buying activity, according to market participants. Tolling has reduced spot demand for cobalt tetroxide to a large extent too.
“Major lithium cobaltate battery makers stockpiled quite a large amount of cobalt raw materials before Metal Bulletin’s low-grade cobalt prices ticked up quickly this year, and now they are tolling to minimize their buying [needs],” a second producer said.
Under tolling agreements, battery makers provide cobalt raw materials and pay refining fees to cobalt producers and battery materials producers, who produce cobalt tetroxide and lithium cobaltate battery materials on their behalf.
“Spot demand might pick up after battery makers exhaust their cobalt raw materials stock,” he added.
And with tolling having replaced a significant amount of spot demand, market participants are wary of the anticipated peak consumption season in the second half of the year when mobile manufacturers launch new products.
With battery makers not making spot purchases lately, they may find themselves in urgent need to buy when the peak demand season starts.
“Consumption of cobalt tetroxide by electronic products remains stable this year, but there are still uncertainties in terms of whether consumption will pick up in September,” a third consumer said.
Substitution to cheaper NCM batteries
Meanwhile, high cobalt prices have forced low-end electronic product manufacturers to shift partially to nickel-cobalt-manganese (NCM) lithium-ion battery production from lithium cobaltate batteries.
Cobalt accounts for about 59.5% of the total chemicals in lithium cobaltate battery materials. In contrast, the most popular NCM523 batteries contain only 20% cobalt, and some battery materials producers can reduce cobalt content further to around 18-19% in NCM523 battery materials by increasing the amount of nickel, according to market participants.
“In most cases, battery makers mix lithium cobaltate battery materials and NCM battery materials, at a proportion of 7:3 with lithium cobaltate battery materials still accounting for more,” a fourth consumer said.
“The substitutions are happening,” a third producer confirmed.