TRADE REVIEW: Oversupply, shifting battery preference hurt Q3 cobalt outlook

This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper , alumina, cobalt, lithium, nickel and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts to new arbitrages, and to quality spread fluctuations.

The cobalt market is expected to be pressured by oversupply and changing battery chemistry preferences into the third quarter of 2024, with market participants not anticipating a price recovery before September following a temporary boost from China's stockpiling initiatives in the second quarter.

Global cobalt raw material output has been forecast to reach 238,000 metal tons in 2024, rising from 220,000-230,000 metal tons in 2023, China's state-owned research agency Antaike has said.

Meanwhile, a shift to lithium-iron-phosphate, or LFP batteries, from nickel-manganese-cobalt, or NMC, batteries, particularly in China where the raw production cost for LFP batteries is cheaper, has hurt demand for cobalt. Over the last two to three years, LFP batteries have jumped from accounting for some 20% of the electric vehicle batteries market to about 80% currently, according to some estimates.

"Cobalt prices have failed to show any signs of sustained recovery as the first half of 2024. Even news of China's reserve-buying of cobalt metal in May provided only short-lived support," said Alice Yu, principal analyst, metals and mining, S&P Global Commodity Insights.

China accounts for more than 50% of fully electric and plug-in hybrid vehicle sales globally. LFP batteries represented 75.5% of the country's market share in June, compared with a 24.3% share for NMC batteries, according to the China Automotive Battery Innovation Alliance.

Platts, part of Commodity Insights, assessed 30% Co cobalt hydroxide -- the main feedstock for cobalt metal and sulfate -- at $6.40/lb CIF China on July 18, down from $6.6-$7/lb CIF China through the second quarter. The price has fallen 30 cents/lb, or 4.5% since the start of 2024.

Platts assessed battery-grade 20.5% Co cobalt sulfate at Yuan 28,500/mt DDP China on July 18, hovering near an all-time low of Yuan 28,000/mt on July 8 since the launch of the cobalt sulfate assessment on May 4, 2018. The price has fallen Yuan 2,000/mt, or 6.6% since the start of the year.

China stockpiling effect fades

Oversupply has put downward pressure on cobalt hydroxide and sulfate prices in 2024, despite China's stockpiling body the National Food and Strategic Reserves Administration planning mid-May to stockpile 15,000 mt of cobalt metal at Yuan 205,000/mt, to be delivered within six months.

Cobalt sulfate is mostly made from cobalt hydroxide, a copper-mining byproduct, and widely used in the production of nickel-manganese-cobalt batteries in electric vehicles.

Increased supply of cobalt hydroxide reached the spot market in the first half of the year. China's CMOC Group said July 3 that its east district Tenke Fungurume Mining has exceeded its production target so far in 2024, averaging over 900 mt of cobalt hydroxide/month. This followed CMOC's record-setting first-quarter cobalt hydroxide production of 25,200 mt, jumping 392% year on year.

Stronger mining activity also led to higher imports of cobalt hydroxide into China, where 75% of the world's cobalt refining activity takes place. China maintained high levels of cobalt hydroxide imports in April of 52,627 mt, surging 24,641 mt, or 88% year on year, and in May of 52,451 mt, rising 17,522 mt, or 50% year on year, China's General Administration of Customs data showed.

China's stockpiling plan had led hydroxide prices to rebound briefly midquarter to $7/lb before ending the quarter at $6.6/lb on June 28.

Cobalt sulfate prices increased from a second-quarter low of Yuan 29,800/mt in mid-May to a high of Yuan 32,500/mt for the quarter following news of the stockpiling plan. The prices were also supported by many cobalt refiners in China cutting or halting production as the term contract volumes for some NMC battery makers had largely met production needs, with minimal spot purchases required.

Demand for NMC batteries in China fell 6.9% month on month to 20.5 GWh in June, according to the China Automotive Battery Innovation Alliance. Meanwhile, Chinese production of mobile phones, which predominantly use lithium-cobalt-oxide batteries containing about 55% cobalt, reached 620 million units from January to May, rising 10.6% year on year, data from China's Ministry of Industry and Information Technology showed.

Commodity Insights has estimated global cobalt chemical demand from electronic batteries growing 9.3% year on year to 50,966 mt in 2024.

Europe cobalt metal at 4-year low

The cobalt metal price in Europe, the second biggest market for EV sales after China, fell to $13.65/lb IW Rotterdam on June 28, the lowest since July 2020 because of oversupply and poor end-user demand for chemical-grade metal.

With the cobalt hydroxide to cobalt metal conversion cost typically considered between $4/lb and $5/lb, margins have fallen for metal producers to process hydroxide and be profitable.

Chinese cut cathodes have continued to be the dominant material traded in Europe. The trend is expected to persist in 2024 as new brands such as Great Power and Tengyuan ramp up production and put more downward pressure on the European market.

Tradables levels for Chinese cut cathodes were heard around $11.50/lb IW Rotterdam throughout the second quarter.

"There's no relief in sight for cobalt metal," said a Europe-based trader. "Metal can continue to go lower but the downside is limited. I wouldn't be surprised if we see metal in the $10s/lb soon and the spread [between chemical and alloy grades] may narrow."

The outlook appears weak with metal prices depressed. "It's an ugly oversupply," said another Europe-based trader. "It shows how oversupplied the market is when 15,000 mt of purchasing is not enough."

Spot activity was poor in the European alloy-grade cobalt market, tradable between $14/lb and $16.50/lb IW Rotterdam as of June 28. "There's zero spot liquidity," a trader said.

Platts assessed European 99.8% cobalt metal at $11.20-$16/lb IW Rotterdam on July 18, with a midpoint of $13.60/lb IW Rotterdam.