Cobalt metal prices hover at low levels despite talk of Chinese stockpiling

Cobalt metal prices are hovering at an 11-month low with a mixed short-term outlook despite talk of up to 2,600 mt possible metal stockpiling by China's National Food and Strategic Reserves Administration, or NFSRA.

NFSRA stockpiling has typically lifted the market sentiment, but sources are uncertain whether it can help boost the sluggish Chinese sulfate and hydroxide markets, which are struggling to regain footing even after the lifting of Shanghai's COVID-19 lockdown.

Weak demand from the 3C -- computers, communications, and consumer electronics -- sector and the battery industry's efforts to reduce cobalt usage in nickel-manganese-cobalt batteries are likely to continue to weigh on cobalt metal prices, sources said.

"It is difficult to get official confirmation and we are still not certain [if NFSRA buying will happen]," said a Chinese trader. "But this metal purchasing will not offer much help on hydroxide or sulfate prices. It still comes down to demand from the battery sector."

Platts assessed 99.8% cobalt metal at $24.5/lb IW Rotterdam Aug. 10, down 38% from a 2022-high toward end-April, S&P Global Commodity Insights data showed.

NFSRA's role in stockpiling

The NFSRA is responsible for purchasing and storing reserves of strategic materials and executing certain procedures in accordance with the National Development and Reform Commission, China's top economic planner.

Some sources have theorized that the NFSRA purchases commodities mainly to support market prices. The Chinese state reserves authority is estimated to have bought just over 2,000 mt cobalt metal in fourth quarter, 2020. Unconfirmed rumors suggested further stockpiling of 3000 mt metal early 2021.

"The NFSRA always buys at the bottom ... they did this with nickel, copper, and a lot of other products," a US trader said. "If you traced NFSRA buying on metals, the market has always responded upwards."

Chinese sources cited gains of up to Yuan 50,000/mt in domestic cobalt metal prices Aug. 9, though the prices have ease through the week as market sentiment cooled.

Some metal traders are bullish about a possible NFSRA stockpiling.

"It is obviously a good thing, I don't know how anyone could be unsure," a US metal trader said. "It is simple, it is a national stockpile. The Chinese economy is protecting itself against sanctions or trade disruptions attached to political or military movements."

If cobalt metal prices were to rise, they could lift cobalt hydroxide prices even though end-market demand remains potentially unchanged, according to sources.

Chinese mid-term hydroxide outlook bearish

There was more uncertainty downstream in the Chinese market on the effect of a stockpiling on the hydroxide and sulfate markets.

Cobalt hydroxide demand has been poor from the battery sector and prices are at a 20-month low with market sources not seeing convincing signs of a recovery in the Chinese market, which accounts for 74% of global refining capacity.

"We are now three-four months in, where China is not there [in the market], so we need to see how that evolves," a cobalt salts producer said. "People in the market are always saying China will be back next month, it is a crystal ball situation and hard to make a good prediction."

If the NFSRA stockpiles, it could change the metal market fundamentals significantly, a Chinese refiner said. But the market is likely to see a downward pressure on metal prices in the weeks to come if the stockpiling doesn't happen. "It's too early to say for sure how big the impact will be, I think we just have to wait and see," the refiner said.

Chinese traders were generally bearish on the mid-term hydroxide prices as supply-demand fundamentals do not support a price hike. At current levels, hydroxide prices would have to be below $13/lb for refiners to not make a loss, sources said.

The cobalt hydroxide market traditionally prices off a percentage payable indicator, with the underlying price being cobalt metal. However, Chinese market participants have increasingly questioned how reflective this pricing mechanism is, particularly as China's COVID-19 lockdowns have highlighted an increasing disconnect between the metal and downstream cobalt product prices.

The Platts fixed price assessment for cobalt hydroxide has shown a sustained downtrend since late April.

Platts assessed 30% Co cobalt hydroxide at $13.10/lb CIF China Aug. 11, down from an all-time high of $34.10/lb April 25. The assessment is for spot cargoes aligned with the Platts methodology loading 15-60 days out.

Cobalt sulfate inquiries have been few as consumers are flocking toward cheaper recycled sulfate tradable around Yuan 51,000/mt Aug. 10, another Chinese refiner said.

Platts assessed battery-grade 20.5% Co cobalt sulfate at Yuan 55,000 ($8,169)/mt DDP China Aug. 11, S&P Global data showed. Prices had declined in the week to Aug. 10 but saw a slight increase after talk of stockpiling.