SHANGHAI, Mar 3 (SMM) - The cobalt industry has gone through a complete industry cycle from 2015 to 2021, and kicked off a new upward cycle in 2020. From the perspective of price changes, from June 2016 to April 13, 2018, the prices of refined cobalt rose from 189,500 yuan/mt to an all-time high of 674,000 yuan/mt, recording significant gains of as many as 485,000 yuan/mt. In terms of factors behind the price hike, in addition to the strong driving force from the demand side, changes in raw material prices are another core factor. In the face of high raw materials prices, a group of cobalt salt companies that hope to avoid the risk of price fluctuations or are incapable of securing upstream resources have successively turned to toll manufacturing.
At this stage, cobalt salt companies which provide toll manufacturing business can be divided into the following types:
(1) Regarding toll manufacturing as the enterprise positioning: The core business is toll manufacturing.
(2) ”Temporary" toll manufacturing : When the prices fluctuate greatly, in hope of avoiding the risk of price fluctuation , some enterprises choose temporary toll manufacturing; when the enterprise has large cobalt salt capacity, but could not obtain enough upstream raw materials or downstream customers, they will choose temporary toll manufacturing.
(3) "Invisible" toll manufacturing: When the enterprise is bound to end-customers that are in a strong position, while its own customer structure is relatively simple, the end-customers may help to obtain raw materials and the enterprise is required to offer the finished cobalt salt products to the downstream Co3O4 or precursor companies designated by the end-customers. That is how it becomes “Invisible” toll manufacturing for end-customers.
Cobalt salt toll manufacturing is mainly in the form of intermediate goods and scrap:
(1) Scrap tolling: The enterprises will cooperate with battery, cathode active materials or precursor factories to regularly and quantitatively offer inter-plant scraps or substandard products to smelters with recycling capabilities, and receive cobalt, nickel, manganese and lithium salts etc. within a fixed period of time. Because the scrap contains various impurities, it will increase tolling cost to remove them.
(2) Intermediate goods tolling: Downstream enterprises assist or negotiate with upstream mining enterprises directly about the contracted volume and prices of long-term orders for cobalt intermediate goods, and provide the raw materials from long-term orders to their own OEM enterprises. During the OEM agreement period, the agreed quantity of finished cobalt salt products can be obtained. This form is similar to conventional production, and the level of tolling fees is in the middle.
(3) Refined cobalt: Downstream enterprises directly purchase refined cobalt and provide it to tollers to process them into cobalt salt crystals or liquors. Due to the direct use of high-purity refined cobalt for production, there are fewer production processes and lower tolling costs.
Future Trends
The lithium battery industry is still in a stage of rapid growth. The following factors may further increase the tolling ratio of the cobalt salt industry in the future:
(1) Capital requirements: From the perspective of company operations, high-priced cobalt supply poses greater challenges to the company’s capital turnover and scale, and it also raises the capital threshold for manufacturers’ expansion and development to a certain extent.
(2) The challenge of ensuring resource supply: Upstream cobalt mining companies have a strong voice in a highly concentrated market, and cobalt salt companies are in a relatively weak position in resource acquisition. When downstream enterprises with strong capabilities begin to set foot in the upstream resources one after another, it will significantly increase the competition, and the pressure of cobalt salt enterprises without resource layout will be further increased in terms of raw material acquisition. This undoubtedly puts forward higher requirements for the comprehensive strength of enterprises.
(3) Downward risk to prices: While the cost of raw materials remains high, once the prices meet the pivot, cobalt salt enterprises without resource layout will lose the buffer zone and face the risks brought by price fluctuations directly. At that time, the industry will undergo an intense change.
