Cobalt to Get Back to Fundamentals after Speculative Surges, SMM Reports

SHANGHAI, Apr. 12 (SMM) – MB low-grade cobalt prices advanced all the way since last November, and as of Mar. 20, prices nearly doubled. Electrolytic cobalt prices in China’s domestic market lurched higher with rising MB low-grade prices and market speculations. Cobalt tetroxide, rising with cobalt chloride, gained to 390 yuan/kg, up from 150 yuan/kg in November 2016.

The round of sharp price gain in the cobalt market was mainly driven by market speculations. MB cobalt price, not discovered by trading, came into being via offering mechanism by reporters, creating high possibility of being manipulated. Meanwhile, domestic investors were keen on hoarding cobalt, and influenced prices by making speculative operations in Wuxi Stainless Steel Exchange Center, which was relatively easily speculated. Moreover, unstable political condition in Congo, a major producing region, also triggered market concerns over supply, also fueling price gains. 

Global Cobalt Oversupply to Ease in 2017, and High Chance to See Shortages in 2018, SMM Foresees

In 2017, a clear sign of predictable decline will be seen at cobalt mines due to limited output growth and operation suspension at some mines. Output of cobalt sulfide, with Co 3-20%, is estimated to fall by over 15% in Congo, and approximately 25% of drop in China’s ore imports in 2016 reflected the falling tendency of supply by Congo. This also provided a speculative chance, allowing cobalt prices, which were underestimated for a long time, to rebound.   

Will the surge continue?

“The absence of fundamentals support will not allow prices at current highs, and market fundamentals will have the final say,” SMM analyst said at SMM 2^nd Cathode Material Conference held on Apr. 7-8.

The fact that the market lacked the rising momentum in March, which consolidated at highs, proved such view.

Both cobalt futures and spot markets descended into chaos after prices were inflated, which was harmful to the healthy development of the sector. First, many speculators entered the market by making use of big price gap between spot and futures prices. For example, the highest price of cobalt contract on Wuxi Stainless Steel Exchange Center was 438,500 yuan, compared with spot prices of 370,000-380,000 yuan, leaving arbitrage room of 15%-20%. Second, spot prices were in chaos. Prices of cobalt tetroxide exceeded prices of cobalt metal, leaving downstream producers in a tough condition. The price gap between cobalt metal and cobalt salt was extremely big, and price of cobalt salt was higher than that of cobalt sulfate made from cobalt metal, with the spread exceeding 10,000 yuan after being converted. In the face of such condition, some producers bought cobalt metal for processing directly.

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