Lockdowns in China dampen cobalt market sentiment

As the annual Cobalt Institute Conference makes an in-person return in Zurich May 17-18, market participants are keenly gauging the sentiment.

A downturn in the cobalt hydroxide price, slow metal demand and the souring global economic picture have shifted sentiment, which had been previously buoyed by a rally across all battery raw materials.

While cobalt hydroxide prices have dipped by up to 50 cents/lb three times since June 2021, this is the first price drop of $2.30/lb since the start of April 2022, when the price hovered around $34/lb.

Platts assessed 30% Co cobalt hydroxide at $31.70/lb CIF China May 16 for spot cargoes aligned to Platts methodology, loading 15-60 days out.

Many sources were citing the sluggish logistics market, which was only worsening because of new copper projects in the Democratic Republic of the Congo adding to demand for the trucking stock.

Durban logistics woes

The supply side of the market had seen problems -- caused by flooding in the Durban area which bought logistics to a standstill for some weeks. The situation forced Glencore to issue a force majeure on deliveries of cobalt hydroxide in mid-April.

Other producers were left in "assessment mode" as they needed to gauge what warehouse inventories had been damaged or lost because of the floods.

Two sellers have since confirmed that no product has been lost, although one source will need to repackage some units.

Ships have started to sail out of Durban, with cobalt hydroxide due to have been loaded over May 7-8.

Given the recent further complications to an already troubled shipping sector, coupled with a tight cobalt hydroxide market, it could have been assumed that this would offer further support to the price.

But the pressure from the downstream cuts has been so strong that it has seen the price fall – breaking a rally that saw the price double from $13.55/lb since the start of 2021 to the peak $34/lb level.

Pandemic resurgence struck China

China's downstream was going at a good clip -- contractual volumes were being taken by consumers, and demand was good for battery materials.

However, the resurgence of coronavirus had resulted in lockdowns starting with Shanghai and extending to Beijing to curb the spread of the pandemic.

Shanghai is home to many leading automobile and auto part manufacturers such as SAIC Motor Corp. and the Tesla Shanghai Gigafactory.

Although automakers had slowly restarted their production in recent weeks, the impact of the lockdown had been evident on China's production and sales of EV in the whole of April.

According to the China Association of Automobile Manufacturers (CAAM), NEV production for April dropped 33% year on year to 210,000 units from March and sales fell 38.3% to 299,000 units over the same period.

Several Chinese vehicle producers fully or partially halted production because of authorities' efforts to control the outbreak or they face shortages in car parts due to transportation hurdles caused by the lockdown, leading to the double-digit decline.

Midstream

Midstream, many China-based cobalt refiners and cathode makers are cutting down production levels due to lower downstream orders but also higher production costs.

With cobalt hydroxide hovering around $32/lb in the week to May 13, some conjectured that cost of producing cobalt sulfate is equivalent to Yuan 120,000/mt. The negative margins had deterred refiners from production as trades for cobalt salts were heard to be as low as Yuan 95,000/mt May 13.

Traders were heard to be offloading materials to relieve financial pressure.

Sources were not in a rush to enter the market due to ample supplies on domestic shores as well.

"There are a lot of cobalt sulfate inventories," a Chinese trader said.

"Some are even considering not fulfilling long-term contracts because it is just too much loss [at current prices]," a major refiner said.

Market participants said they believed the current situation may continue in May and well into June.

"I honestly don't think they would reopen until the whole city has zero cases," a Chinese precursor maker said.

Besides the cut in downstream production, queues of ships were also seen at ports.

"Ports are completely blocked, and we are now getting blank sails," where vessels pass ports they are due to dock at, one cobalt seller said.

"The only consolation is that everyone is in the same boat," the source added.

However, some are more optimistic about the delays from Durban as well as the congestion at Chinese ports.

Delays

Many said cargoes from Durban were delayed by a month. However, they expressed no hurry in receiving units due to the current weak demand.

"The later, the better," another Chinese refiner said.

Ships have now started sailing from Durban, although sources have said it will take some time before capacity is back to normal.

The Chinese economy can ramp back up from lockdown quickly despite its size, and market participants are watching for the cessation of these measures, which will signal the return of demand.

Market participants anticipate expect upside on the price once the Chinese economy opens back up.