13 Apr 2023 | 06:00 UTC

TRADE REVIEW: Cobalt market eyes subdued Q2 on hydroxide oversupply, dim EV prospects

Highlights

Cobalt metal rebounds on stable alloy demand

Sulfate remains pressured on weak EV outlook

Tenke Fungurume mine in focus after ban last year

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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, 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.

After a brief positive spell in Q1, cobalt metal and sulfate prices are bracing for a gloomy April-June quarter, as a surge in hydroxide inventories and softening demand outlook for electric vehicles dissuade buyers.

Asian cobalt prices rebounded around mid-Q1 following a consecutive 10-month decline, S&P Global Commodity Insights data showed.

Platts-assessed cobalt metal was at $16.95/lb-$18.40/lb in-warehouse Rotterdam on March 31, up from a two-year low of $15.3/lb-$16.45/lb on Feb. 16, the data showed.

The gains were driven by increased alloy demand from the aerospace industry and limited supply of cobalt amid the ongoing import tariffs or sanctions by the US on certain export nations.

This helped push alloy deals higher, with some rising up to $18/lb in Q1, but still below the Q4 average of $23.4/lb.

The momentum was, however, short-lived, with the oversupply of cobalt hydroxide and weak demand from major sectors like EVs and consumer electronics capping gains, despite the ongoing export ban at China Molybdenum's Tenke Fungurume mine in the Democratic Republic of Congo.

A large part of the Q1 price uptick was led by traders looking to add to their existing positions in a bid to take advantage of 'cheaper' units, as they believed the market had reached its bottom.

Nevertheless, there were instances of some traders accepting deals in the mid- to low-$15/lb levels. This slowed the pace of price increase, despite sellers looking to achieve at least $16/lb and higher towards end-Q1.

Platts assessed 30% Co cobalt hydroxide at $9.1/lb CIF China March 31, down 17.2% from the start of Q1 and 73.2% lower on the year.

EV demand takes a pause

Prices of Chinese cobalt sulfate traded below nickel sulfate for the first time on Feb. 9, as consumers continued to destock, showing little spot demand through Q1.

Despite Chinese EV sales showing a month-on-month improvement in February, there remained excess supplies, with sources remaining uncertain about a meaningful recovery going into Q2.

This was particularly evident from the weakness in lithium carbonate prices, a strong indicator of overall EV demand, which discouraged cathode and battery makers from returning to the spot market.

Platts assessed battery-grade 20.5% Co cobalt sulfate at Yuan 39,700/mt DDP China March 31, down 19.4% from the start of Q1 and 66.5% lower on the year, S&P Global data showed.

Metal eyes cautious optimism; sulfate braces for uncertainty

Market participants are keeping a close eye on the progress at the Tenke Fungurume mine following the ban last July. The mine is reportedly holding over 10,000 mt of cobalt inventories.

"It's not like material from Tenke will immediately flood the market once the ban is lifted, but it will definitely affect sentiments," said a Chinese refiner.

There were divergent views on whether the potential lifting of the ban could impact hydroxide prices as current spot prices are close to miners' cash costs, sources said.

The outlook for EV sales was further clouded by sharp discounts on internal combustion engine (ICE) vehicles in China, which has struggled with EV sales as manufacturers began slashing prices around February.

The pressure to destock ICE vehicles ahead of the roll-out of the 6b emission standard in China in July have weighed on EV sales, as certain models will no longer meet the stricter emission requirements, and therefore cannot be sold to consumers.

As a result, demand for cobalt salts will likely be subdued through Q2, despite efforts to boost EV sales.

The consumer electronics segment will also face a seasonal lull in Q2, so the odds seem stacked against recovery in the salt market in the short term.

On the metals front, there is cautious optimism. Despite the price improvement towards the end of Q1, market sources are not overly bullish about Q2.

"We expect a subdued cobalt metal price until at least the second half, when more noticeable demand improvements occur as PEV sales normalize and the Chinese economic recovery is well underway," according to S&P Global Market Intelligence analyst Alice Yu.