Fastmarkets commences daily outright pricing for cobalt hydroxide
The cobalt hydroxide market has increasingly switched to conducting transactions on an outright $ per lb basis in 2023, due to cobalt metal price volatility and uncertainty in the hydroxide market
To capture the additional liquidity and reflect the changes within the cobalt hydroxide market, Fastmarkets has changed the frequency of its previously weekly cobalt hydroxide index to now be a daily assessment.
The price remains on a CIF China basis and is priced on a $ per lb basis. The new frequency is designed to capture the additional liquidity and provide a transparent daily picture of the cobalt hydroxide market.
Fastmarkets’ daily cobalt hydroxide index 30% Co min, cif China, was calculated at $7.30-7.60 per lb on Monday September 4, unchanged from September 1.
“It will be interesting to see how the daily price performs from a liquidity perspective but a daily price enables people to get closer to the market, which is a good thing,” a cobalt trader said.
Historically, cobalt hydroxide deals have been agreed at a certain percentage payable against the low-end of Fastmarkets’ standard-grade cobalt metal price. Market participants often use this for annual and multi-year contracts due to the floating basis accounting for price changes during the contract period.
During the first half of 2023, Chinese appetite for cobalt hydroxide in large volumes reportedly fell due to low end-consumer demand and weaker regional macro-economics.
The preference became to secure volume only when it was needed, stimulating spot trade on an outright basis that had not been observed in the previous year.
Buyers have continued to purchase on an outright basis, signaling a preference for volumes to be transacted this way at present.
“This outright assessment will be good for the market, it’s China-centric as they are the only ones right now that can provide daily indications. Outside of China there is some activity but it’s also formula and payables-basis at the moment,” a cobalt consumer said.
Fastmarkets has also heard of deals with forward-delivery terms being transacted on an outright basis.
“There is a lot of cobalt hydroxide supply available, and that will continue to ramp up as we move through this decade; a daily price will help navigate that,” a cobalt market participant said.
Fastmarkets research estimates cobalt mined production, which combines cobalt hydroxide and mixed hydroxide precipitate (MHP), at 257,000 tonnes in 2024. This is up from 216,000 tonnes in 2023.
The global cobalt market is estimated to be in a surplus of 15,000 tonnes in 2024, this is up from 8,000 tonnes forecast for 2023, and from a 2,000-tonne surplus estimated for 2022.
Some market participants have also expressed interest in the outright basis for cobalt hydroxide because it does not factor the cobalt metal standard grade price into the transaction.
“Cobalt metal represents a small part of the entire cobalt market, it should be a strictly cobalt hydroxide price given the market size we expect to see throughout this decade,” a cobalt producer source said.
Earlier in the year, buyers were hesitant to commit to spot hydroxide deals that were based on a percentage payable of the cobalt metal standard grade price because of the heightened volatility seen in the metal price.
“The long shipping times from Africa to China meant your deal price could move against you, if the metal price moved significantly during that journey time,” a cobalt buyer said.
“That’s one reason why some buyers moved to agree on an outright price basis; risk appetites were not high,” they added.
The midpoint of the cobalt metal standard grade price is down by 21.9% in the year to date following a downturn in demand and a rise in the supply of cobalt intermediates.
“Some of us in the [cobalt] metal trade would love for hydroxide to begin to detach itself away from metal, it should be two separate markets in my opinion,” a second cobalt trader said.
Fastmarkets’ daily price assessment for cobalt standard grade, in-whs Rotterdam, was $14.00-15.90 per lb on Monday, widening upward from $14.00-15.75 per lb on September 1.
“I think it’s a good time to introduce the new mechanism, it should have some time to establish itself before the underlying details on contracts are discussed and it could be an option [for that],” a third cobalt trader said.
The fourth quarter of the year is historically the period in which long-term supply agreements are negotiated. A daily price will look to help market participants navigate market sentiment and trends during this key business period.