COBALT MONTHLY REVIEW - JULY: Benchmark metal price fall slows; strength gathers in China
The downward trend in the benchmark cobalt price slowed in July, with some suppliers less eager to compete for sales while spot activity is slow, speculative buying spurs the domestic Chinese metal price and optimism filters through to the cobalt sulfate market.
Traders in the international market continued to focus on back-to-back business rather than restock in any meaningful way in July amid limited spot activity, despite the standard-grade cobalt benchmark price being at a 34-month low.
Some suppliers were reluctant to cut offer prices, which slowed the downtrend in the cobalt benchmark price. The price was down 9% month on month in July, compared to a 13.2% drop in June.
There was a marginal uptick on the high end of the range by the end of the month, with a modest recovery in spot inquiries and trades amid emerging strength in China.
The Chinese cobalt metal price rebounded in mid-July after a wave of speculative buying on both the local futures platform and the spot market, while limited spot availability of some domestic brands incited stockpiling among traders, which further underpinned the blue metal price in China in the last week of July.
The momentum in the Chinese cobalt price succeeded to build confidence in cobalt sulfate producers who were no longer willing to surrender to lower sales prices when they could not balance the book.
Although, the rebounding cobalt-sulfate price has done little to meaningfully revive buying appetites among consumers who minimized procurement amid lower production and a generally weak picture of the electric vehicle (EV) supply chain. Market participants reckon it has been difficult to secure any large-tonnages purchases at previously low levels while suppliers are determined to raise offers.
“We are not surprised that the cobalt [sulfate] price is finding a base…it seems that many cobalt producers/processors were operating at a loss, so lower production may have been enough to increase prices. Firmer prices may well lead to a swing from destocking to mild restocking, which could boost apparent demand, even if real demand is flat,” William Adams, head of Fastmarkets’ battery raw materials research team, said.
The rising cobalt sulfate price also buoyed cobalt hydroxide payables, which had been under persistent pressure since mid-May despite the falling underlying metal price, with inquiries and trades picking up since mid-July.
It is a busy month in July when half-year company financial and production reports are released. This July, several companies in the battery materials supply chain highlighted challenges from poor battery demand and a sharp drop in cobalt prices.
Belgium battery materials producer Umicore reported revenues of €1.63 billion ($1.82 billion) in the first half of 2019 - down by 3% year on year - and forecast stable or falling income in 2019.
The market awaits Glencore’s revised cobalt production guide - due on August 7 - after the cobalt giant suggested in its half-year production report that it would announce a lower 2019 production forecast for its Katanga mining asset in the Democratic Republic of Congo (DRC).
Several days earlier, the Swiss trader-miner reached an agreement with First Cobalt on the framework for a phased recommissioning of a cobalt refinery in Ontario, Canada, in less than a year, with an aim to expand to 55 tonnes per day in 2021.
While market participants expect lower cobalt-hydroxide production from Glencore, ERG is deciding whether to start selling the cobalt hydroxide produced at its Metalkol Roan Tailings & Reclamation (RTR) project in the DRC and has appointed Telf AG as the exclusive offtaker.
Downstream, the London Metal Exchange agreed to list China-based Huayou’s cobalt cut cathodes from July 16 of this year. The producer has capacity of 2,000 tonnes per year.
Although consumers’ and traders’ inquiries for cobalt metal both picked up in the international market, market participants are awaiting Glencore’s lower cobalt-hydroxide production guidance for 2019, which might prompt some concrete bullishness and ground the metal price increases.
Cobalt hydroxide payables and the underlying standard-grade cobalt benchmark price made modest gains at the end of July and the start of August respectively, with market participants expecting further price strength in the near term.
“Cobalt producers’ have a slightly stronger hand now due to the lower-than-expected output in the DRC, Katanga’s sales being affected by the uranium issue, a slower-than-expected ramp-up at RTR, expectations that artisanal output will be reined in further due to low prices and government clampdowns following the accident at Glencore’s Kamoto copper-cobalt open-pit mine in June that killed illegal artisanal miners. So payables might pick up and prices may follow,” William Adams said.
Still, market participants, especially consumers, doubt their potential willingness to agree to much higher payables, citing weak demand from the battery sector.
“Sentiment on the demand side seems to have weakened following Chinese subsidy changes, which seem to have prompted sales of EVs with cheaper [lithium iron phosphate] LFP and [lithium manganese oxide] LMO batteries, which have no cobalt, rather than the [nickel-cobalt-manganese] NCM battery,” Adams said.