SHANGHAI, May 25 (SMM) - Since the outbreak of the pandemic in China, refined cobalt prices have been falling in the past month, which dropped even more quickly and significantly recently, with the greatest intraday fall at 12,000 yuan/mt on May 16. Market participants are confused about the reasons for the cuts and the future trend.

Some people simply attribute the price drop to poor demand, which is not really the case. Since late March this year, cobalt-related product prices have continued to fall steadily, so weak demand is relatively constant, and it is difficult to explain the recent sharp price drop. And we still need to look at the supply and demand sides as well as the market sentiment to study the causes.

Refined cobalt output has been rising on production resumption and expansion

Refined cobalt output increased by 100 mt or 16% compared with the previous month. The additional output mainly came from the expanded capacity of large refined cobalt factories and the production resumption of established refined cobalt manufacturers.

Why is it that the output increases when the prices drop? Perhaps many people are wondering about this issue. I think the main reason is the profit trade-off. While cobalt prices have fallen in recent months, cobalt salt prices in the new energy market have also continued to fall. Among them, the prices of cobalt sulphate, which accounts for the largest share of the market, have dropped below the spot prices of refined cobalt on April 22 when converting nickel sulphate prices into that of metal content. In addition, refined cobalt is generally traded in the futures market, where transactions are more flexible, and the market is slightly more heated than the cobalt salt market. Therefore, some smelters adjusted their capacity allocation with profit trade-off.

Purchasing demand weakened in light of spreading COVID

The market concentration of cemented alloy enterprises is not high, with small and medium-sized enterprises being the main participants. In the last two months when the pandemic situation has been severe, the overall downstream operating rates were low amid restricted transportation. Because of the small volume and poor risk resistance, these enterprises stood cautious when purchasing raw materials.

At present, the operating rates of companies in Jiangsu, Zhejiang and Shanghai as well as the surrounding areas are generally low, and cemented alloy enterprises in other regions mainly produce based on the orders. While the small and medium-sized private enterprises receive few new orders.

As such, alloy market’s demand for cobalt metal is still sluggish.

Push from the sentiment front

Overseas prices, as the raw material pricing base for domestic cobalt products, are regarded as the vane of the market. Since the fourth quarter of last year, overseas prices continued to rise and began to fall in mid-May. Though their rise did not play a role in pulling up domestic cobalt prices, their fall dragged down domestic prices.

The sharp fall of overseas prices and discount factors means that the cost of refined cobalt is also dropping, while making the market feel that cobalt still have more room for downward movement, resulting in the dive in market prices.

Has refined cobalt prices touched the bottom?

From the supply and demand, the production of refined cobalt continued to increase in May. But as the impact of the pandemic is still great, and demand remains weak, which is likely to improve in late June.

The new energy market demand has also not yet improved either, and the prices of cobalt salt have repeatedly moved downward, affecting the prices of the cobalt metal. It is expected that the demand for cobalt in the new energy market will usher in some growth in mid-to-late June, and the negative impact on the prices of cobalt metal will then weaken.

Due to the dismal domestic demand for cobalt, overseas prices and discount factors have frequently dipped to accommodate the current state in the domestic market, so overseas prices and discount factors may go further downwards, which in turn will affect cobalt metal prices.

Generally speaking, the domestic refined cobalt price are likely to fall further in the near future

SMM Forecast: Refined cobalt market inventory has remained tight this year, and there exists an illusion of supply sufficiency only because of the recent poor demand and the emergence of added production. In terms of import volume, 212 mt (metal content) of refined cobalt were imported in April 2022 (converted at 99.8% grade), a 45% decrease MoM and a 76% decrease YoY, and current social inventory is also continuing to fall.