Cobalt prices see limited upside on demand uncertainties

SHANGHAI, Aug 19 (SMM) – SMM expects limited upward room in near-term prices of cobalt as uncertainties around downstream demand may keep midstream producers from stockpiling heavily. More spot cargoes of cobalt salts will be available at some domestic producers next week, and dampen the bullish outlook on prices. 

Extended national subsidy for new energy buses till August 7 boosted their production and sales in July, while China’s electric vehicle sector saw the first year-over-year declines in output and sales last month. The share of lithium iron phosphate (LFP) batteries, mostly applied in new energy buses, among the overall installed capacity of batteries in electric vehicles grew as a result. 

However, demand for new energy buses may weaken after July’s frontloading and passenger vehicles will regain its dominance to drive the market, SMM expects. 

Data from the China Association of Automobile Manufacturers (CAAM) showed that about 80,000 new energy vehicles (NEVs) were sold in July, down 4.7% from a year ago and 47.5% from a month ago. Sales of pure electric vehicles saw a sharper decline. NEV production decreased 37.2% from June and 6.9% from July 2018 to stand at 84,000 units last month.

Industrial data showed that production of power batteries in China fell 10.4% from a month ago and stood at 5.7GWh in July. Among this, Production of ternary batteries fell 6.4% on the month to stand at 4.3GWh, with output of LFP batteries losing 17% to 1.4GWh. 

Current downstream demand for NEVs remains at lows after new subsidy scheme took effect in late June. Expectations of a new policy release for 2020 NEV subsidies and strategy transition at major carmakers will determine the demand in the second half of this year. 

In Jiangxi and Guangdong provinces, some battery producers under strategic partnership with automakers stepped up production, but overall run-rates across power battery mills in China failed to recover on poor consumption. 

SMM retains its forecast that, in the second half of the year, car manufacturers may look to focus on LFP batteries in light of their price advantage and safety performance, as recent price rally in raw materials nickel and cobalt boosted costs of ternary batteries. 

Last week, top producers of refined cobalt in north-west China continued to trade under long-term contracts and kept from providing spot offers. High prices of seaborne Zambia cobalt sidelined consumers, with also quiet trades of domestic brands, which were quoted at 260,000 yuan/mt. A few offers of cobalt hydroxide were heard in the spot market, at $9-9.5/lb, with limited downstream purchases. 

SMM assessed prices of refined cobalt climbed 17,000 yuan/mt from a week ago, to stand at 242,000-252,000 yuan/mt in the week to Friday August 16. Prices of cobalt hydroxide also rose $0.3/lb on the week to $8-8.3/lb.

Producers of cobalt salts significantly raised offers last week, with some quotes exceeding 50,000 yuan/mt. Anticipations of higher prices drove small and medium-sized ternary precursor plants to stockpile. Downstream purchases also buoyed prices of cobalt chloride. 

Prices of cobalt sulphate came in at 43,000-46,000 yuan/mt in the week to Friday August 16, up 5,500 yuan/mt on the week, with prices of cobalt chloride standing at 47,000-50,000 yuan/mt, up 3,000 yuan/mt. Prices of nickel sulphate grew an average 625 yuan/mt on the week to 26,250–28,500 yuan/mt.

Low inventories and higher overseas prices prompted domestic producers of cobalt (II, III) oxide to hike offers, but actual trades were limited. SMM assessed prices at 163,000-168,000 yuan/mt as of Friday August 16, up 16,500 yuan/mt from a week ago.

Prices of ternary precursor continued to grow on improved demand and higher prices of raw materials cobalt and nickel. 

In the week to Friday August 16, prices of NCM523 rose 4,500 yuan/mt on the week, to 79,000-81,000 yuan/mt, with prices of NCM622 also climbing 4,500 yuan/mt, standing at 87,000-90,000 yuan/mt.

An absence of a demand pick-up in the lithium carbonate market further dragged on prices. Some downstream material producers expected demand to resume at the end of September. Those producers kept stocks of lithium salts at lows amid expectations of further downsides in battery-grade lithium carbonate prices. 

SMM learned that some producers of lithionite, feedstock to produce lithium salts, in Jiangxi province scaled back production and some local refineries also suspended, cut output from July. Production at top producers, however, remained at highs and pressured prices of lithium carbonate. 

Despite stable downstream demand, falling prices of battery-grade lithium carbonate may expand downside room in prices of industrial-grade lithium carbonate. 

SMM assessed prices of battery-grade lithium carbonate at 62,000-65,000 yuan/mt, down an average 2,000 yuan/mt on the week, and prices of industrial-grade lithium carbonate at 56,000-59,000 yuan/mt, down an average 1,500 yuan/mt.

Last week, prices of battery-grade lithium hydroxide also trended downsides on domestic slower-than-expected development of high-nickel ternary battery capacity. As of Friday August 16, prices of battery-grade lithium hydroxide (coarse particle) shrank an average 1,500 yuan/mt on the week, to stand at 72,000-75,000 yuan/mt, SMM assessed.

Purchases from the downstream digital market rallied prices of lithium cobalt oxide (LCO), used to produce 4.35V batteries, by an average 10,000 yuan/mt on the week, to 195,000-205,000 yuan/mt as of Friday August 16. 

Prices of ternary materials were lifted by higher costs of raw materials, even as lower prices of lithium carbonate offset part of the price rally in precursor. As downstream demand has yet to fully recover, growth in prices of ternary materials was slower than that in raw material prices. 

SMM assessed that prices of both NCM523 and NCM 622 materials grew 1,000 yuan/mt on the week to 128,000-136,000 yuan/mt and 145,000-152,000 yuan/mt, respectively.

Prices of LFP used in power batteries barely changed last week, at 46,000-49,000 yuan/mt, SMM assessed. Demand recovery is expected in September given the expanding 5G sector and cost advantage of LFP after NEV subsidy cuts. 

Prices for lithium manganese oxide (LMO) received downward pressure from lower prices of lithium carbonate last week. 

SMM assessed prices of LMO, used in high-energy-density lithium-ion batteries fell an average 500 yuan/mt on the week and stood at 29,000-34,000 yuan/mt, and prices of LMO used in motive batteries lost 1,000 yuan/mt on the week to 44,000-46,000 yuan/mt.