TRADE REVIEW: Cobalt metal market seen oversupplied through Q2 as demand subdued

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 metal market is expected to be oversupplied through the second quarter and beyond in 2024 because of rising Chinese supply and subdued demand, potentially weighing on prices.

But cautious optimism surrounds prices of cobalt sulfate -- which is mostly made from cobalt hydroxide, a copper byproduct, and widely used in the production of nickel-manganese-cobalt batteries in electric vehicles. The optimism stems from anticipated higher production of cobalt containing batteries and forecast growth in plug-in electric vehicle, or PEV, sales.

Global PEV sales in 2024 are expected to grow 30% from an estimated 13 million units in 2023, according to S&P Global Commodity Insights. However, waning PEV subsidies may impact sales growth.

"As subsidies shrink, PEV sales momentum will be dictated by consumer income, vehicle price, model choice and performance, and producer-side 'sticks' in meeting emissions regulations," said Alice Yu, senior analyst, metals and mining research, S&P Global Commodity Insights.

Shipping delays and higher freight rates in the wake of geopolitical tensions in the Middle East alongside tighter alloy-grade metal availability could provide some support to cobalt metal prices, Yu said.

China-origin metal supply rising

Market participants expect new projects in China to bring an additional 9,000 mt of cobalt metal capacity into the global market in the second half of 2024.

Chinese refined cobalt metal output is expected to reach 30,400 mt in 2024, jumping more than fourfold, or 319% from 2021, according to an industry source.

S&P Global Commodity Insights analysts expect the global cobalt metal market to remain in a surplus until 2026, and that is likely to put pressure on 2024 spot prices.

"There will be competition in the European market from Chinese units, so prices might remain affected by the oversupply," said a European trader.

Despite a supply surplus, some cobalt sulfate refiners have switched to producing cobalt metal, due to potentially higher profit margins because of lower production costs.

Cobalt hydroxide spot prices weaken

Weak cobalt hydroxide spot prices have weighed on refiners' margins in the first quarter of 2024 after hitting a record low in the fourth quarter of 2023.

Platts' assessment of cobalt hydroxide prices reached a quarterly high at $7.2/lb CIF China on March 21, rebounding from a record low of $6.5/lb in the fourth quarter of 2023. Prices stood at $6.80/lb on April 16, down 22% year on year. Platts is part of S&P Global Commodity Insights.

Prices have been supported by high offers in the market despite abundant cobalt hydroxide supply in the Chinese domestic market.

Market participants estimated cobalt hydroxide production cost around $5-$6/lb in early April, expecting downside in the second quarter, as CMOC's cobalt metal output rises in 2024.

Some Chinese refiners said that they continue to rely on offtake from their term contracts as that allows them to better manage production costs for healthier margins.

Spot purchases of cobalt hydroxide in the first quarter were mostly for metal production, some Chinese refiners said.

Rising cobalt sulfate demand from PEVs

Cobalt chemical demand from PEV batteries is expected to grow to 111,499 mt in 2024, representing 56.4% of the total forecast cobalt chemical demand this year, according to S&P Global Market Intelligence.

Platts Chinese Cobalt Sulfate prices stood at Yuan 31,600/mt ($4445/mt) on Jan. 15, amid regular restocking activity and higher offers in the domestic market. An influx of inquiries for the material was received as cathode and precursor makers continued production throughout the Lunar New Year holidays to fulfill overseas orders.

The market share for nickel, cobalt and manganese in China's battery market was 32% in March at 24.2GWh, according to data from China Automotive Battery Innovation Alliance.

Chinese production and exports of mobile phones, which mostly use lithium-cobalt-oxide batteries containing about 55% cobalt, increased 11.8% year on year in January and February, data from China's Ministry of Industry and Information Technology showed.

However, cobalt sulfate prices began to stagnate ahead of the Lunar New Year holidays as logistics slowed in the Chinese market and downstream restocking had completed.

Platts' cobalt sulfate DDP China assessment reached a quarterly high of Yuan 33,200/mt on March 26, rising 8.9% from the start of the quarter due to better-than-expected demand from NMC batteries, but still down 32.7% down from its highest level in Q1 2023.

Platts assessed battery-grade 20.5% Co cobalt sulfate at Yuan 31,000/mt DDP China on April 16, down 14.2% year on year.

Sluggish European cobalt metal demand

European chemical-grade cobalt metal demand was steady in Q1 2024, with a dip in inquiries in mid-February due to the Lunar New Year holidays.

Platts' European 99.8% cobalt metal assessment was in the $12.4-$17.0/lb IW Rotterdam range, with a midpoint of $15.075/lb on April 15, rising slightly from a midpoint of $14.60/lb on Dec. 29. This reflected both the chemical and alloy-grade markets.

"Demand [for cobalt metal] over the next few months isn't going to be spectacular either, unlike the US and Asia, where demand is sturdier despite the lack of subsidies for electric vehicles and continued high prices [for EVs]," said a European seller. "If there is a pickup in demand, the second half of the year may pick up to see a floor price of $14.50/lb."

Demand in the first quarter was comparatively higher in the US for certified alloy-grade cobalt metal used in the aerospace and defense industries.

Platts assessed cobalt cathode DDP US at $17.5-18.0/lb on April 15, rising from a low of $17.25/lb on Jan. 8. In comparison, European alloy-grade cobalt metal fluctuated in the $16-$17.50/lb IW Europe range in the first quarter.