Cobalt hydroxide prices underpinned by steady restocking

Prices and payables for cobalt hydroxide stretched to new highs last week, when Chinese refineries continued their restocking efforts in a market that remains tightly supplied for spot cargoes.

Fastmarkets’ cobalt hydroxide payable indicator, min 30% Co, cif China, was 78.5-80.5% of the price for cobalt standard grade, in-warehouse Rotterdam (low-end), on Friday October 23, widening upward from the October 21 assessment of 78.5-80%.

The weekly cobalt hydroxide index, min 30% Co, cif China, was calculated at $12.39 per lb on Friday, up 10 cents from $12.29 per lb a week earlier. 

Payables are up from 77.5-78.5% on October 2, while the index is up from $11.95 per lb. Both are at their highest since Fastmarkets starting tracking the spot market for cobalt hydroxide in January 2019.

“What we are seeing is encouraging. The restocking cycle has picked up as part of buyers’ stock build-up pre-Chinese New Year [February 12],” a distributor said.

Logistics routes in China slow down during the week-long Chinese New Year holiday, so buyers are looking for cargoes arriving in China ahead of the February break.

Suppliers also attempted to incrementally raise their offers, with the majority of November cargoes having been sold following China’s National holiday on October 1-8.

On the other side, refineries are also working with limited security stock, especially in cases where long-term contracts were not signed for 2020.

“The Chinese have been buying hand to mouth a bit. The picture is well balanced but they never have quite enough to see them through… Demand is [good enough] to keep them coming back regularly and paying up when they have to,” a second distributor said.

The demand from electric vehicle (EV) battery sector in China has remained steady since the second half of year with sales and production on an upward trajectory, which translated into healthy demand for upstream materials.

“The production and sales of EV are pretty good recently, and on top of all, the sales [of battery materials] are in line with the optimism in the EV sales,” a consumer source said. “The momentum might be able to last for a few months since automotive producers will have to achieve sales target in the remaining months of 2020.”

“I wonder if the refineries were running their stock levels lower than we thought,” a supplier source said.

But the potential for certain consumers to substitute hydroxide with metal as feed is slowing the increase in payables.

“The scarcity of hydroxide might force some buyers into a corner [to consume] metal; it’s a safety valve,” the supplier said.

“Spot business is good, but consumers aren’t willing to chase the payables too much higher,” the first distributor said, adding, “it’s a bit sticky around 80%, psychologically, and because you start to look at substitution from an economic standpoint; 80% payables are healthy but then you start to get into bubble territory.”

While buyers are wary of higher payables, especially given that they are settled against a future unknown metal price, which carries some risk. Metal prices have been relatively steady of late, meaning the payable is the component able to reflect the tightness in the intermediates market.

“The differential between hydroxide and metal is as a narrow as it can get. Something has to change, and the whole cobalt market is underpinned by hydroxide tightness. Long-term, payables should be around 75%, so it’s uncomfortable, but metal isn’t moving so payables have to keep moving,” a trading source said.

Fastmarkets’ price assessment for cobalt standard grade, in-whs Rotterdam, held at $15.60-15.90 per lb on Friday, where it has been since October 14. Prices started the month at $15.50-15.85 per lb.

“The tightness has got to be reflected somewhere,” the supplier source said.

Susan Zou in Shanghai contributed to this report.