COBALT MONTHLY REVIEW – DECEMBER: Prices slump as 2019 bearishness filters through to international metal market

Global cobalt prices came under mounting pressure in December, with the bearish outlook for 2019 and forecast oversupply showing no signs of relenting and sellers rushing to get stocks off their books ahead of the year-end.

Price moves
Benchmark cobalt prices slumped in December following relative stability in October and November as year-end book-squaring created even greater competition for scant spot business.

Consumers had been topping up with only their minimum required units since the start of the summer, wary of the possibility of further price declines. Some market participants commented that any December purchases had been well-timed to take advantage of seasonal destocking.

The pace of falling prices ramped up in the context of a bearish outlook for 2019 and an aggressive mating season dominated by talks of strong discounts for metal against the Fastmarkets cobalt price.

As metal prices fell, discounts on cobalt sulfate against metal consequently narrowed, but the market remained wary and vulnerable, particularly with Chinese participants under pressure to repay credit lines before the year-end.

Market news
The fallout continued from November’s news that exports of hydroxide from Glencore’s Katanga mine had been suspended due to excessive uranium levels. During an investor update last month, Glencore said it had revised its forecast for cobalt production downward by 8,000 tonnes in 2019 as a result of the suspension.

The miner-trader also flagged customer non-performance on some of its cobalt sales in the second half of the year, feeling the effect of ramping up hydroxide supplies and weaker realized prices for cobalt products, particularly sulfate and intermediates.

Further downstream, the requirement for new electric vehicle (EV) battery projects to focus on higher energy density (lower cobalt, higher nickel) chemistries was removed from official auto industry investment regulations in China.

Buying interest for cobalt sulfate weakened in 2018 after the Chinese government raised the minimum driving range of EVs eligible for subsidies. To achieve higher driving ranges, automakers must shift to nickel-rich batteries, which in turn require less cobalt. But the change in investment regulations could signal that the government will review its policy of increased energy density requirements in 2019, market sources told Fastmarkets.

Price falls ramped up in December as year-end book-squaring met the already bearish outlook for 2019, when the market is expected to move into a larger supply surplus (due to the continuing ramp-up of Glencore’s Katanga mine and the start-up of ERG’s Roan Tailing Reclamation operation, with other smaller operations also ramping up or starting up).

“The fact the market did not rebound on news that Glencore was to halt exports from Katanga while it builds an ion-exchange plant to reduce traces of uranium in its cobalt hydroxide product was further evidence of bearish sentiment. Even if exports are halted in the first half of the year, the market… will be well supplied with stockpiled material,” said Will Adams, Fastmarkets’ head of battery raw materials research.

The divergence of Chinese domestic and port prices with international metal prices suggests there is no shortage of cobalt product despite growing demand from the downstream market: EV sales in the first 11 months of 2018 were up 69% over the same period of 2017.

“What this suggests is that the downstream supply chain has destocked into the price weakness – this may mean there is room for restocking in 2019 to boost apparent demand,” Adams said.

Fastmarkets changed the names of its benchmark in-warehouse Rotterdam cobalt price assessments on January 2, 2019. The name “standard-grade” has replaced the name “low-grade.” The name “alloy-grade” has replaced the name “high-grade.” Click here for further details about the name changes and consultation process.