COBALT INSTITUTE CONF 2019: Six things we learned in Hong Kong

Six key takeaways from the Cobalt Institute’s annual conference in Hong Kong on May 15-16, 2019.

Cobalt prices likely to oscillate either side of $15 per lb
Supplies of cobalt metal remained limited but the upside for prices would be capped as long as the hydroxide market was in a surplus.

Prices were expected to fall over the summer due to weaker seasonal demand, before rebounding as they did at the end of March, sources told Fastmarkets on the sidelines of the event.

Buyers identified the price of $13-15 per lb as an appealing opportunity to restock, especially if the long-term outlook for demand, which takes account of consumption from the electric vehicle industry, were taken into consideration.

Hydroxide payables remain vulnerable
While metal prices have found stability in recent weeks, cobalt hydroxide prices were expected to remain under pressure, with buyers taking comfort in good availability of intermediates in South African warehouses and Chinese ports.

Fastmarkets’ assessed hydroxide payables at 67-69% of the low-end of the standard-grade metal price on Wednesday May 15, unchanged from the previous assessment, but buyers have been able to lock in a payable of 65% outside the prompt market.

The likelihood of movement in prices made a third-party assessment of the hydroxide payables all the more valuable, and discouraged buyers and sellers from agreeing contract terms for more than three months at a time, market participants said.

Consumers favor bonded warehouse cobalt hydroxide
In addition to the intention to purchase seaborne cobalt hydroxide through monthly or quarterly spot or short-term contracts, an increasing number of Chinese consumers preferred to purchase cobalt raw materials directly from bonded warehouses.

This can reduce the time consumed by logistics, so consumers are able to manage the risks resulting from potential price volatility during the typical shipping period of 30-40 days between South Africa and China, respectively the major shipping departure point and consumer of cobalt hydroxide.

Market sources pointed out that such a sales approach could also significantly reduce the risk to both parties if one of them were to scrap an agreement due to a sharp price change, before the cargo was loaded or shipped.

A trend toward purchasing material from stock in Asian warehouses could also mean an increase in the number of fixed-price deals, rather than a link to the underlying metal price via a payable, since reduced delivery times gave less exposure to fluctuations in price.

EV battery industry might trend toward tolling
Electric vehicle (EV) makers were the best option for the cobalt supply chain to manage the risks that arise from price volatility, due to their strong financing, market sources said on the conference sidelines.

The market might, they added, trend toward a situation in which there were only two major parties – cobalt hydroxide producers and EV makers.

That said, cobalt hydroxide producers might be reluctant to push for this because of EV makers’ strong negotiating powers and the narrowing margins that would result.

Battery materials producers that met with Fastmarkets during the conference took a broadly neutral stance toward such a change, but they pointed out that a significant number of battery materials producers could be squeezed out of the market if EV makers and battery makers were to feed on tolled products.

Cobalt sulfate price below breakeven unlikely to mean large-scale production stoppages
Cobalt sulfate in China had been under increasing pressure since mid-April. Fastmarkets assessed the price of Chinese cobalt sulfate at 46,000-48,000 yuan ($6,660-6,950) per tonne on May 15, down by 4.1% from 48,000-50,000 yuan per tonne on May 10.

The consensus at conference was that the battery raw material price was likely to trend below this year’s low of 45,000-47,000 yuan per tonne, seen in late March.

Some producers will cut production – and some have already done so – because sales prices have moved lower than their production breakeven point, estimated roughly at 40,000-50,000 yuan per tonne. But large-scale production stoppages were not expected because producers need to keep cash flowing, even when making a loss, market sources told Fastmarkets.

Responsible sourcing initiatives must identify common goals
Initiatives intended to define and facilitate ethical practices across the cobalt supply chain must come together to provide a coherent message on responsibility requirements.

“There’s a real need to collaborate in a coherent fashion. There are too many initiatives out there, and I think there’s real scope to come together,” James Nicholson of the Global Battery Alliance said.

That will include engaging with the government of the Democratic Republic of Congo, which will remain crucial to supplying cobalt, with more and more material being consumed by the e-mobility sector. “These plans will mean nothing,” Nicholson added, “if the consumers are not convinced that we are united.”

Join members of Fastmarkets’ cobalt price reporting and research team for a web seminar on Tuesday June 18 at 9.30am London time to discuss recent price moves in the cobalt market and how industry developments might affect the market going forward. Click here to register now.