TRADE REVIEW Q3 2024: Market bearish as Indonesian cobalt metal to further oversupply Europe

Oversupply remains a key driver of price in the European cobalt metal market, with a continued depressed outlook for the product amid Chinese overproduction.

With more Chinese metal producers increasing production capacity and other origins like Indonesia becoming more prevalent, the oversupply picture has become the norm in the European market.

Same old (supply) story

In China, numerous cobalt sulfate refiners are transitioning from producing salts to metal, driven by the higher profit margins associated with metal. Additionally, cobalt sulfate has a shelf life of about three months, making it susceptible to both product deterioration and price fluctuations, whereas cobalt metal has a significantly longer shelf life.

Given the already historically low spot price levels for cobalt metal, market participants have suggested that there should be limited downside potential in the near-term.

Platts assessed cobalt metal mixed-use basket A at $10/lb IW Rotterdam Sept. 30, down from $10.40/lb when the new assessment was launched Sept. 2. Comparatively, this has come down from $12.75/lb IW Rotterdam, the low end of Platts previous cobalt metal assessment, at the start of 2024.

According to one market analyst, the theoretical price floor for cobalt hydroxide is about $3.50/lb, which considers logistics, warehousing and financing. This is because cobalt is mined as a byproduct and is supported by relatively strong copper prices. Cobalt hydroxide is consumed by producers of both cobalt metal and cobalt sulfate.

The conversion cost from cobalt hydroxide into metal is estimated to be from $3-$4/lb, including profit margin, according to market sources. Platts assessed Cobalt Hydroxide at $6/lb CIF China Sept. 30, down from $6.60/lb July 1.

The continued overproduction of cobalt metal is a particular issue for those brands that can be accepted by most of the European end-user market, especially for those which have a higher cost of production.

This comes as nickel-cobalt producer Ambatovy Minerals in Madagascar shut down a slurry pipeline used to transport hydrate nickel ore to its refinery, following an incident involving the discharge of ore Sept. 25, with no timeline announced for the restart of production. Several cobalt market participants told S&P Global Commodity Insights that the shutdown had no impact on spot prices, amid the wider supply glut.

Ambatovy generally produces around 3,100-4,000 mt/year of cobalt metal briquettes, according to market participants.

Production increases led by CMOC Group, now the largest individual producer of refined cobalt, have surpassed guidance. The company achieved 83% of its annual production target for cobalt in the first half of 2024 alone, producing 54,024 metric tons of refined cobalt, representing a 178% year-on-year increase, according to their 2024 interim results Aug. 23. This comes as Glencore, another major refined cobalt producer, saw its production fall 27% to 15,900 mt in the same period.

More Indonesian production comes online

In 2023, Indonesian mined supply totaled 8% of global supply, or 18,200 mt, according to an industry source -- a 135% increase year on year. In 2024, the mined supply of cobalt from Indonesia is expected to reach 30,300 mt, or 13% of global supply.

The PT Halmahera Persada project, a joint venture between Chinese metal service provider Lygend Resources and Indonesian mining company Harita Nickel, is one of the more recent additions to the cobalt metal market and reached its annual design capacity of 4,000 mt of refined cobalt per year Sept. 2, with the completion of its third high pressure acid leach, or HPAL, project on Obi Island, Indonesia.

Multiple traders in the European market told Commodity Insights that they have purchased samples of Lygend’s cut cathodes, but as a new entrant, acceptance from consumers was heard to be mixed.

“A persistent oversupply of cobalt is raising concerns about the short-term market outlook," a Europe-based trader said. "Chinese and Indonesian cobalt refiners are continuing to ramp up production, but downstream demand remains insufficient to absorb the additional volumes, resulting in further stock accumulation.”

“This accumulation could accelerate once Chinese refiners fulfil their delivery commitments to the SRB [China’s National Food and Strategic Reserves Administration] by late this year or early next.”

Commodity Insights anticipates the refined cobalt market to remain in a technical surplus through to 2028, with surplus expecting to peak in 2024 and narrowing over subsequent years.

Forecasts show that the refined cobalt market is expected to remain in a 27,000 mt surplus heading into 2025, according to the Commodity Insights Critical Minerals Briefing from September 2024.

Platts overhauls EMEA cobalt metal price assessments

Following the emergence of a clear divergence in prices between various cobalt metal brands over 2023 and 2024, Platts overhauled its cobalt metal coverage on Sept. 2, splitting the assessment into three daily cobalt metal assessment, each of which reflect certain mixed-use metal brands.

The assessments are published as a single close value, rather than a range, representing the most competitive brands on the day.

The price divergence of Chinese metal brands became increasingly noticeable in 2024, with some Chinese brands trading at a $1/lb discount to what some traders labeled Western brands.

Platts’ mixed-use basket A assessment includes multiple brands producing Chinese cut cathodes, Sherritt of Cuban origin and Nornickel Norilsk cut cathodes, while Platts’ mixed-use basket B assessment includes brands such as Murrin Murrin, Ambatovy, Vale Long Harbor and CTT.

The alloy use assessment takes into consideration Jinchuan, Nikkelverk, SMM and Vale Port Colborne cobalt metal.

Alloy market expected to tighten in 2025

Several market participants highlighted that they were expecting some supply tightness in the aerospace grade cobalt metal market in 2025.

Japan’s Sumitomo Metal Mining is expected to cut production for next year, with the assumption that it will produce between 2,500 mt and 3,200 mt of cobalt metal, with only 1,000 mt of this available for the US market in 2025, according to market sources.

“On the alloy side, it’s mostly too early for long-term contracts to be agreed, but some [producers] are creating a fear of missing out, saying that there will only be Chinese material in Europe [and no aerospace metal left],” a Europe-based trader said.

“The US market, which has so far been largely shielded from the influx of Chinese metal due to 25% import duties, is expected to see an increase in Indonesian cobalt supply in the coming months,” another Europe-based trader said. “This could erode the [pricing] premium status of the US market moving forward.”

Cobalt is used in superalloys for jet engines and gas turbines due to its high-temperature stability and strength. This makes it essential for the aerospace and defense sectors.

Platts assessed European Cobalt Metal 99.8% Alloy Use at $14/lb IW Rotterdam Sept. 30, down 50 cents from when the assessment was launched Sept. 2.

Meanwhile, in the US, the alloy-use cobalt metal market remains much more active and typically trades at a premium to the European market. Platts assessed Cobalt Cathode DDP US at $15.55/lb on Sept. 30, down from $16.80/lb on July 1.

S&P Global Commodity Insights will be hosting a free methodology webinar on its revamped European cobalt metal assessments and world-first global suite of black mass markets on Nov. 5.

For more details and registration, please click on the following link: Platts Pricing Methodology & Markets Explained