COBALT MONTHLY REVIEW – FEBRUARY: Metal prices take 24% hit amid alloy-grade sell-off

The benchmark standard-grade cobalt price slumped to two-year lows in February amid a surplus of metal, leaving the market to shrug off longer-term bull signs on the supply and demand side.

Fastmarkets cobalt monthly average prices

Price moves
Cobalt metal prices continued to tumble in February, with concerns of further declines deterring consumers from making large spot purchases. Where possible, buyers have opted to procure cobalt hydroxide or salts from plentiful stocks, leaving an overhang of metal not committed to long-term deals.

That overhang has been particularly prevalent for alloy-grade units, forcing a discount of more than $1 per lb to open up for alloy-grade material against standard-grade mid-month. That differential soon tightened with consumers unwilling to pay the premium for broken cathodes and briquettes, which have typically been less desirable than cut cathodes.

And while benchmark metal prices plummeted, producers of battery materials in China held back from purchasing cobalt sulfate, or limited their restocking efforts, wary of sitting on high-priced stock in case of another price decline. Salts sellers were forced to cut their offer prices in order to lock in sales after the new year.

Market news
Production of cobalt was suspended at the Chambishi refinery in Zambia last month due to constrained supply of imported feedstock. The news was followed the next week by the announcement that Boss Mining, which has traditionally supplied the cobalt feedstock to Chambishi, was being put on care and maintenance at the end of February.

The knock-on effect of the suspension at Chambishi on the supply of broken cathodes was expected to provide some short-term respite to falling cobalt prices, but for the time being, an overhang of supply and reluctant consumer buying as clouded the theoretical tightening of the market.

“Everyone is so well covered at the moment [the Chambishi news] hasn’t fazed anyone. No one is knocking down the door at all,” a trader told Fastmarkets.

But ultimately, if that suspension endures, it should, alongside other supply disruptions, prove bullish for the market, Fastmarkets head of battery raw materials research William Adams notes: “Last year it looked like the supply response would be negative for the market, it now looks like this year’s supply situation will turn out temporarily bullish.”

But despite the slump in benchmark cobalt prices, electric vehicle adoption and the associated requirement for automakers to secure traceable and sustainable cobalt units were a core topic for discussion at last month’s Mining Indaba in Cape Town.

Honda expects to have around two thirds of the vehicles it produces electrified by 2030

Ford is working with Huayou and LG Chem in a blockchain project to monitor supplies of cobalt from the Democratic Republic of Congo. The automaker is looking at collaboration across the supply chain in the first instance but said it would evaluate the need for offtakes or mine details further into the future, if needed.

And Japan’s Panasonic is considering investing in the upstream part of the battery raw materials industry to gain better oversight of quality, pricing and supply chain responsibility.

Outlook
“Given exports from Katanga have been halted, the market will rely on the drawdown of other producer stocks to balance the market this year. This could lead to a tighter market later in the year, especially if the current low price also forces some artisanal miners out of the market for a while,” Adams said.

Most market participants spoken to by Fastmarkets expect cobalt at $15 per lb to be a good buy in the long term, but for the time being, destocking continues to put pressure on the market.

Buyers have been hit by high-priced stock purchased in the run up to last year’s multi-year highs, while producers have been rushing to get material off their books, but that dynamic can only last so long, Adams noted.

“Destocking is finite [and] there may be considerable pent-up demand as consumers are expected to restock once the sell-off has run its course…We expect higher prices in the second quarter than in the first quarter,” Adams added.

Charlotte Radford

charlotte.radford@fastmarkets.com

Published

Charlotte Radford

March 04, 2019

17:06 GMT

London