COBALT MONTHLY REVIEW – JANUARY: Oversupply pressures metal prices below $20 per lb; cobalt sulfate moves to premium
Oversupply continued to push European cobalt metal prices downward in January 2019, with buyers stepping back from the spot market amid a shared negative outlook.
Meanwhile, the Chinese price for cobalt sulfate ticked upward because of stockpiling before the Lunar New Year holiday, February 4-10.
The cobalt benchmark price moved below $20 per lb in late January, with persistent selling pressure in the spot market, where buyers minimized their buying activity on expectations that the metal price would continue to move lower.
Fastmarkets’ assessment of the standard-grade cobalt price was $18.75-20.75 per lb on January 30, down by 27.5% from the end of December, and close to its lowest level for two years.
Standard-grade metal continued to trade at prices slightly higher than alloy-grade metal for most of the month, with cut cathode more easy to acquire than broken cathode, and stock not committed to long-term contracts.
Elsewhere, in China, the price of cobalt sulfate edged higher in mid-January with consumers starting to replenish stocks ahead of the Lunar New Year holiday, which largely reduced spot availability. But the price of cobalt salts dipped later in the month with sentiment hit by potential post-holiday vulnerability.
Fastmarkets assessed the price of cobalt sulfate, min 20.5% Co, ex-works China, at 67,000-69,000 yuan ($9,913-10,209) per tonne at the end of January. The assessment of the cobalt sulfate adjustment to the low-end price of Fastmarkets’ standard-grade cobalt benchmark, basis 20.5% Co, was at a premium at $0.05-0.17 per lb on January 30. Cobalt sulfate started to trade against the standard-grade cobalt benchmark at a premium in late January, moving from a persistent discount seen in the preceding 10 months.
In raw materials, cobalt hydroxide payables for traceable units ticked up to 62% of the low of Fastmarkets’ standard-grade cobalt price in January, compared with about 60% in December. Some offers climbed to 64%, according to data collected by Fastmarkets.
Meanwhile, in response to the emerging cobalt hydroxide market, Fastmarkets proposed to launch two reference prices - a cobalt hydroxide index and a payables indicator.
While cobalt prices have shown serious downward moves since the second half of last year, optimism persists in the battery raw materials markets. Canadian investor Cobalt 27 will pay A$250,000 ($181,000) and deliver 200 tonnes of cobalt from its stockpile to acquire a royalty for lithium produced at the Mount Marion mine in Western Australia.
Under the agreement, Cobalt 27 will receive 1.5% of gross revenue and A$2 per tonne of ore produced at Mount Marion, under the Reed Industrial Minerals sub-lease agreement.
“We [are] intensely focused on accelerating near-term cashflow from battery metals streams and royalties,” Anthony Milewski, chairman and chief executive officer of Cobalt 27, said. “Acquisition of the royalty is being largely funded by a small percentage [7%] of our existing holdings of physical cobalt.”
At the time the deal was announced on January 7, the value of 200 tonnes of cobalt metal was about $11.4 million, taking the lower end of Fastmarkets’ benchmark standard-grade cobalt price assessment. In the market in early February, it would be worth about $8.3 million.
Such volatility has, in recent years, led to calls for a new way to hedge cobalt exposure. Last month, the London Metal Exchange announced that it would launch a new cash-settled cobalt contract on March 11, settled against the benchmark standard-grade cobalt price assessed by Fastmarkets.
The contract is intended to provide market participants with a hedging tool amid increasing price volatility.
In January, major producers were busy announcing their annual production results and production guidelines for 2019, which again reminded market participants of the oversupply dynamics expected in the cobalt market in the next few years.
Glencore produced 42,200 tonnes of cobalt in 2018, up by 54% from the previous year. The full-year production guidance for 2019 was 57,000-62,000 tonnes.
Concern continued about materials from the miner’s Katanga asset in the Democratic Republic of Congo (DRC). These are temporarily being stockpiled on site, pending a long-term solution to the problem of excessive uranium levels in the material. But the suspension of sales and exports from Katanga has done little to relieve market concern about a fundamental surplus of material.
Canadian nickel and cobalt producer Sherritt also raised its cobalt production target, intending to produce 3,300-3,600 tonnes of cobalt in 2019 from its Moa joint asset in Cuba, up by 11% from the actual production of 3,234 tonnes in 2018.
The company also forecast 3,500-4,000 tonnes of cobalt production in 2019 from its Ambatovy joint venture in Madagascar, which produced 2,852 tonnes of cobalt in 2018.
Despite the export uncertainty over Katanga’s cobalt hydroxide, the cobalt benchmark price has shown surprisingly continuous downward acceleration in the past two months, on suppliers’ attempts to offload excessive metal.
“The combination of more scrap, falling prices and an outlook that points to excess supply, have all weighed on prices. It seems that the price correction has been front-loaded,” Will Adams, Fastmarkets’ head of battery raw materials research, said.
But the traditional recovery from manufacturing activities after the Lunar New Year holiday, and the price of metal going below $20 per lb (a recent psychological resistance level), were likely to combine to halt the downswing and perhaps even lead to a turnaround.
“We expect an L-shaped selloff – price weakness now to be followed by flat prices later,” Adams said.
“We expect a stronger second quarter than first quarter, because destocking can only go on for so long. And while the Lunar New Year holiday [in China] may have encouraged destocking, a recovery in manufacturing activity after the holiday may prompt some restocking that could turn prices higher,” he added.
“The price going below $20 per lb, the market watershed, will restrict the slowdown,” Vicky Zhao from Fastmarkets’ battery raw materials research team said, “and will push new projects to delay their commissioning or reduce their intended production.”
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.