TRADE REVIEW: Asian cobalt market to face pressure from oversupply, weak demand in Q4

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.

Asian cobalt sulfate and hydroxide prices are expected to remain under pressure due to a combination of oversupply and weaker-than-anticipated demand in the battery sector heading into the fourth quarter of 2024.

Market sentiment for cobalt sulfate is expected to stay bearish, as demand from nickel-manganese-cobalt (NMC) batteries in electric vehicles (EV) softens amid the shift in battery and EV preferences.

Cobalt hydroxide, a key raw material for cobalt sulfate and a byproduct of copper production, may experience temporary support from higher miner offers during Q4 term contract negotiations, though consistent oversupply driven by elevated copper prices in 2024 is likely to limit price gains.

Chinese cobalt sulfate prices hit record lows

Cobalt sulfate prices in China remained largely rangebound around Yuan 28,000/mt ($3,933/mt) during the summer lull period in July and August and slipped further to below Yuan 27,000/mt in September due to weaker-than-expected demand from NMC battery during this traditionally peak season month for power batteries.

Platts assessed battery-grade 20.5% Co cobalt sulfate at Yuan 26,800/mt DDP China on Oct. 16, hitting an all-time low since the launch of the cobalt sulfate assessment on May 4, 2018.

Downstream battery makers reported that their production needs were mostly satisfied by term contract volume in Q3, resulting in infrequent and minimal spot procurement, while many cobalt sulfate refiners have stopped or cut production amid negative profit margins.

Preference for LFP battery, PHEV weigh on cobalt demand

A prevailing shift towards alternative battery technologies continues to impact cobalt demand, affecting demand for battery raw materials such as cobalt sulfate and cobalt hydroxide.

High raw materials costs associated with nickel and cobalt have encouraged battery makers and investors to explore technologies beyond NMC batteries. Lithium-iron-phosphate (LFP) batteries, which are free of cobalt and nickel, are preferred for their safety, longer lifespan, and lower costs, and have gained traction, especially in China, in recent years.

NMC production stood at 74.8 GWh through Q3 2024, occupying a market share of 24.6% compared with LFP battery production which had a market share of 75.2% at 229 GWh, down 2% on the quarter, according to China's Automotive Power Battery Industry Innovation Alliance.

The growing production and sales of plug-in hybrid electric vehicles (PHEVs) are also affecting material requirements, as these vehicles use smaller batteries compared to fully battery-electric vehicles (BEVs). According to data from the China Association of Automobile Manufacturers, PHEVs production accounted for 40% of the Chinese market from January to September 2024, a 10% increase in market share compared to 2023.

Despite this, cobalt demand still finds consistent support from the consumer electronics sector which mostly uses lithium-cobalt-oxide batteries containing about 55% cobalt. During July and August, China's mobile phone production increased by 9.3% year over year while its exports increased by 4.8% year over year, data from China’s Ministry of Industry and Information Technology and China Customs showed.

Cobalt hydroxide oversupply pressures prices

Upstream, cobalt hydroxide has been heavily oversupplied owing to favorable copper mining conditions.

Despite some miners experiencing slower growth in their production levels, China’s CMOC Group, the world’s biggest cobalt producer, achieved cobalt production of 54,024 mt in H1 this year, up 178.22% year on year, with an average monthly output of around 9,004 mt of cobalt.

“With producers like CMOC doubling their capacity and some companies struggling to manage the excess cobalt hydroxide, this shows that the substantial production volumes have intensified the pressures in an already oversupplied market,” a market participant said.

“The amount of cobalt hydroxide produced by CMOC alone will be able to cover China’s demand for cobalt hydroxide, cobalt sulfate and cobalt chloride in 2024,” a Chinese trader said.

The increase in mining activities has also led to a surge in cobalt hydroxide imports into China, where the majority of the world’s cobalt is refined. In July, China imported 49,889 mt of cobalt hydroxide, up 88% year-on-year. In August, imports rose to 51,815 mt, 50% higher year-on-year.

Platts assessed 30% Co cobalt hydroxide at $6.10/lb CIF China on Oct. 16, reflecting a 53-month low since the launch of the cobalt hydroxide assessment on May 6, 2020.

This decline is largely due to oversupply concerns as market participants acknowledged that current demand is struggling to keep up with supply. Some sources indicated that mixed hydroxide precipitate (MHP), which typically contains about 5% of cobalt, is becoming an alternative supply to cobalt hydroxide and dampening cobalt hydroxide demand.

The excess supply of cobalt relative to market demand is challenging for producers as they struggle to manage production levels without further depressing prices. Offers were heard up to $6.3-$6.4/lb in Q3 while market participants discussed their long-term contracts for 2025.

Cobalt surplus to persist until 2028

With high imports of cobalt hydroxide persisting and downstream demand remaining weak, cobalt sulfate and hydroxide prices are likely to face continued pressure in the upcoming months, market participants said, adding that NMC battery producers anticipate a further decline in Q4 production compared to Q3 as NMC batteries are currently underperforming compared to LFP batteries.

The cobalt market is currently expected to be in surplus through 2028, with the surplus peaking at 27,000 mt in 2024 and gradually decreasing to 3,000 mt by 2028, said Alice Yu, principal analyst at S&P Global Commodity Insights. She added that cobalt production growth will slow by 2028 as low current prices limit investment and expansions. Meanwhile, cobalt demand will continue to rise, benefiting from the increasing uptake of EVs.