Ukraine invasion compounds sense of tightness in cobalt market

Cobalt market participants have reported that this week’s Russian invasion of Ukraine will compound the tightness in availability of units in the spot market while some opt to steer clear of handling Russian material

While Russia-based cobalt suppliers have not been directly targeted so far by sanctions imposed on Moscow, market sources told Fastmarkets that the current escalation of tensions alone is sufficient for western traders and sellers to avoid sourcing new material from Russia.

“No one is sitting here waiting to see if sanctions will be placed or not. You have to act now to protect your position or de-risk your supply,” a trader said.

“There hasn’t been a direct ban on trading Russian material, but the risk is now just too high. You expose your business to all sorts of issues. That makes it basically impossible to do new direct business [with Russian cobalt volumes],” he added.

Cobalt metal prices rose quickly in 2021, owing to increased tightness and logistics bottlenecks against a growing demand backdrop. Fastmarkets’ research team estimates a supply deficit of 5,000 tonnes of cobalt in 2021.

The price rally has intensified so far in 2022.

Fastmarkets assessed the price of cobalt, standard grade, in-whs Rotterdam at $35.20-35.85 per lb on Friday February 25, up by 5.2% from $33.50-34.05 per lb at the beginning of the year.

“The price growth this year so far has been faster than the market expected, and the situation in Ukraine is adding to that sentiment,” a second seller said.

Cobalt availability has been tight since last year, and the current scenario with Ukraine is expected to compound the lack of supply.

Russia has one active cobalt and nickel producer, diversified miner MMC Norilsk Nickel, which also supplies platinum group metals (PGMs), precious and minor metals.

In its annual financial update for 2021, the company reported 5,000 tonnes of total cobalt sales in 2021 across all products (including non-Russian feed), a 17% increase on the year before.

Market sources estimate Russian output of cobalt metal alone to be closer to 3,000 tonnes in an average year.

Participants suggest that a sizeable share of that supply pipeline may now be unviable.

“There is no rule against buying Russian [per se],” a third trader said. “I can buy Russian in Rotterdam. But I believe the cobalt market is going to be short. New Russian production feeding demand is important, and that’s gone now [in] what was already a tight market.”

Market participants stressed there is a distinction between direct business with Russian producers – which is now being actively avoided by many – and the handling of Russia-produced units that were bought previously and now sit with third parties. Material falling under the latter condition was described as “fair game”.

“If you have the units with you outside of Russia, and you have cleared those, that’s fine,” one market participant said.

One key issue participants have flagged is that western lenders, concerned about potential future sanctions and wary to risk angering the US government in fear of reprisals, have unofficially advised their clients they will not be offering credit lines to finance new purchases from Russia.

“Banks are terrified of US sanctions. So, they won’t fund transactions,” a fourth trader said.

“Sanctions don’t need to [officially] hit. New Russian production is not going to be financed,” a fifth trader told Fastmarkets.

A sixth trader said they had received unofficial warnings in this regard following news of the invasion.

“We have been told by [our lender] to clear anything that we may have in the pipeline now, because from next week they won’t agree to any new financing [for Russian units]. They gave us a bit of a heads up that this is going to happen,” he said.

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