Why China’s cobalt prices continue to slide despite easing Covid-19 lockdowns

China’s cobalt sulfate and cobalt metal prices trended down in June after a slight pick-up in demand failed to offset the headwinds of sufficient supply and bearish sentiment following the lifting of Covid-19 lockdowns in Shanghai on June 1.

Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China was 76,000-80,000 yuan ($11,363-11,961) per tonne on June 24, down by 10,000-20,000 yuan per tonne from 78,000-81,000 yuan per tonne on June 22. The latest assessment was down by 7.14% from 83,000-85,000 yuan per tonne on June 1.

Fastmarkets’ price assessment for cobalt 99.8% Co min, ex-works China was 380,000-385,000 yuan per tonne on Friday June 24, down by 5,000-10,000 yuan per tonne from 390,000-400,000 yuan per tonne on June 22. The latest assessment was down by 15.93% from 440,000-470,000 yuan per tonne on June 1.

China’s electric vehicle (EV) production is gradually recovering after the lifting of the Covid-19 lockdowns and near-restoration of normal domestic transport links, leading to increased demand for cobalt sulfate, one of the main upstream EV battery materials, market participants said.

China’s EV output reached 466,000 units in May, up by 49.5% month on month and up by 113.9% year on year, according to China Association of Automobile Manufacturers (CAAM). EV sales reached 447,000 units in May, up by 49.6% from April and up by 105.2% year on year.

“Demand for cobalt sulfate from downstream precursor makers has improved slightly, with some buyers purchasing two or three hundred tonnes each week,” a cobalt sulfate producer said.

Similarly, China’s cobalt metal sellers noted a slight pick-up in demand entering June after the lifting of lockdowns of Covid-19 in Shanghai.

“Compared to previous months when Shanghai was under strict lockdowns and domestic transport was hugely disrupted, current demand for cobalt metal [has improved a small amount],” a cobalt trader said.

Limited support from the slight improvement in demand

Cobalt sulfate trading has picked up but downstream precursor makers had no immediate demand for the material and cheaper scrap-fed materials added pressure to the prices of regular-fed cobalt sulfate, Fastmarkets learned.

“Downstream buyers keep pressing down cobalt sulfate prices and are only accepting much cheaper cobalt sulfate that is produced from scrap, rather than from cobalt hydroxide that has higher production costs,” the cobalt sulfate producer said.

A second cobalt sulfate producer source concurred. “Most buyers bid at 70,000-71,000 yuan per tonne for cobalt sulfate; it is hard for us to sell at such a level considering the production costs,” he said.

“But there are some sellers who are in very tight cashflow [and they] started to compromise with cheaper prices,” the source added.

The slight improvement in demand did not translate to substantial support to the cobalt metal price in China and failed to stop it from sliding further, sources said.

“Even though the demand for cobalt metal has improved, it is still at a low level. Consumers continue to purchase only on a hand-to-mouth basis and there’s no large-scale restocking,” a second cobalt trader said.

Multiple market participants told Fastmarkets that the downstream production rate of the industrial sector - one of the main consumers of cobalt - remained at approximately 50% of their normal levels. This is approximately the same level as in the end of May.

Oversupply in the cobalt market

Supply of cobalt sulfate and cobalt metal in China both outpaced demand, offsetting the slight increase in the demand for both materials.

“The cobalt sulfate market has sufficient stocks, which were accumulated in the past three months... there are approximately over 10,000 tonnes of stocks for cobalt sulfate on the market,” a third cobalt sulfate producer source said.

“We still have cobalt sulfate stocks on hand, so we are no hurry to purchase large volumes in the short-term,” a downstream precursor producer said.

Due to the low cobalt sulfate prices, high production costs and thin buying, some cobalt producers have already lowered their production of cobalt sulfate.

Multiple cobalt producers in China maintained a minimum operation rate of around 50% or below for cobalt sulfate in June. They also planned to destock cobalt sulfate, pressured by a lack of buying during the second quarter.

“Production costs already exceed the sales prices of cobalt sulfate, which curbs our production. We have no choice but to reduce output by around 50% in order to minimize the loses,” a fourth cobalt sulfate producer said.

On the other hand, cobalt producers channeled more feedstock to the production of cobalt metal, whose sales prices brought fewer losses than those of cobalt sulfate.

Major cobalt producers are running their cobalt metal production at very high or even full capacity, sources told Fastmarkets.

Multiple market participants said that cobalt is oversupplied. Its monthly output is approximately 1,000 tonnes, compared with a monthly consumption estimated at 400-500 tonnes, Fastmarkets learned.

“Amid the oversupply and thin demand in the cobalt metal market, sellers have to constantly lower their offers to boost sales in the sluggish market,” a third cobalt trader said.

A gloomy outlook

Chinese market participants remained pessimistic toward the near-term cobalt market amid the oversupplied market and the effect of slightly higher demand.

Thin consumption and lower offers from China added to the falling international cobalt metal prices, increasing bearishness in the market.

Fastmarkets’ daily price assessment for cobalt standard grade, in-whs Rotterdam was $33.45-34.25 per lb on Tuesday June 27, unchanged from a day earlier.

“The Chinese cobalt market is already bearish. But the recent decline of the international cobalt metal market has only added to bearish sentiment [in the] market,” a fourth cobalt trader said. “The cobalt market in China will not likely see any recovery in demand and prices in the near term.”

“At the end of May, market participants expected the demand and prices of cobalt metal and cobalt sulfate to increase from the end of June or early July. But now it’s the end of June, and the price decline of cobalt sulfate and cobalt metal during June has crashed their confidence in the market,” a fourth cobalt producer source said.

“Now market participants broadly expect the cobalt market to recover with major improvement in demand and [higher] prices during August or September,” she added.

Meanwhile, futures prices of cobalt metal contracts in China’s Changzhou Zhonglianjin E-Commerce platform grew lower on the forward months between July and October, which also reflected the bearishness widespread in the market, market participants said.

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