Cost Support Weakens as Cobalt Prices Fall Across the Board

This week (September 4-10), China's cobalt market broke lower across the board, with cobalt metal, cobalt intermediates, cobalt sulfate and cobalt powder all posting notable declines. Unlike previous rounds, this decline was not accompanied by any clear bearish news; weakening confidence amid dashed demand expectations was the common thread running through the market this week.

Capital flows were the direct driver behind this week's fall in cobalt metal. Prices on the electronic platform retreated rapidly from mid-week, falling from around 300,000 yuan/mt to below 280,000 yuan/mt. The session first saw a brief decline on rising open interest, before shifting to an overall decline on falling open interest, a clear sign of capital-driven trading. On the spot side, mainstream smelters cut ex-works prices to 295,000 yuan/mt; traders' basis offers changed little, holding at premiums of 1,000-13,000 yuan/mt, with sales profits mainly relying on calendar spread hedging and the basis. Downstream buyers continued to restock only on an as-needed basis, purchasing cautiously, with transactions difficult to expand.

The price-holding stance on the raw material side also loosened this week. Cobalt intermediates prices fell rapidly. Although leading miners continued to hold prices firm, two suspected deals during the week shook the market's stalemate: early in the week, an overseas trader reportedly sold a small volume at around $15/lb, with the final buyer - domestic or overseas - still in question; mid-week, rumors circulated that a domestic trader had sold a batch of intermediates at around $17/lb. Against a prolonged absence of concluded deals, the emergence of these low-priced cargoes further weighed on market sentiment.

Notably, the rapid decline in raw material prices brought no relief to smelters. Although raw material prices once again fell faster than cobalt salts, smelting margins continued to recover on paper; however, in a downtrend, margin recovery could hardly translate into price support, and instead paved the way for further price concessions ahead. This was most evident in the recycling segment: current cobalt payables stand at 70-72% for ternary batteries, 69-71% for LCO batteries, 74.5-76% for ternary pole pieces and 72-74% for LCO pole pieces, putting the spot cost based on cobalt content alone at only 56,000-58,000 yuan/mt, a cost advantage that leaves room for recyclers to sell at low prices.

Squeezed by both falling costs and weak demand, cobalt sulfate broke below previous support this week. A small number of recyclers sold at low prices under financial pressure, with the lowest offers falling to around 60,000 yuan/mt, dragging mainstream smelter offers down to 62,000-63,000 yuan/mt. On the demand side, there has been no sign of improvement since the beginning of September; rumors that a leading battery cell maker will sharply cut production in September further weakened demand expectations, and downstream buying intentions have been lowered to around 60,000 yuan/mt.

Cobalt powder was not spared either. Orders at large cemented carbide producers have yet to recover, and companies continued to digest previously accumulated inventories. Smelters' low-end offers fell to around 385,000-390,000 yuan/mt, with the average price breaking below the 400,000 yuan/mt mark. The SMM cobalt metal-to-cobalt powder price ratio rose to 0.74-0.75, indicating a more urgent decline in cobalt powder than in cobalt metal.

Looking ahead, this round of decline was driven by sentiment and capital flows rather than any new substantive bearish development in supply and demand. In the short term, digesting low-priced cargoes across the chain will take time, and with no bright spots on the demand side, cobalt prices are likely to continue bottoming out on a weak note.