Weakness in China NEV market unlikely to support sustained cobalt price rally

SHANGHAI, May 19 (SMM) – Prices of cobalt rebounded last week, but the possibility of a sustained price rally is limited given the continued weakness in the new energy vehicle (NEV) market. Spot cobalt transactions were light last week as large-scale producers of high-temperature alloy and magnetic materials had sufficient stockpiles of cobalt raw materials. 

In the lithium market, prices of lithium carbonate have fallen to the bottom levels. High inventories of spodumene and finished products depressed ore purchases and prompted some plants to slow down operations or withheld from delivering. SMM expects prices of battery-grade lithium carbonate to halt declines in the near term. Prices of lithium hydroxide may face some downward pressure in late-May as market participants across the chain monitor the changes in demand and supply fundamentals. 

According to data from the China Association of Automobile Manufacturers (CAAM), China’s production of NEVs stood at 80,000 units in April, up 31.6% from a month ago while down 22.1% from a year earlier. China’s NEV sales came in at 72,000 units in April, 9.7% higher on the month while 26.5% lower on the year. The year-on-year declines of production and sales narrowed 34.8 and 26.7 percentage points, respectively, from that in March. 

The market of special-purpose vehicles stood out in April, with the production up 135.2% on the month and 171.8% on the year. SMM expects a significant rally in the special-purpose vehicle production and sales this year, driven by the taxi and bus markets as Chinese cities have implemented policies to encourage the electrification of public transport. 

Domestic power battery output came in at 4.7GWh in April, down 35.5% on the year while up 5.5% on the month, showed data from the China Industry Technology Innovation Strategic Alliance for Electric Vehicle. Among this, production of ternary batteries fell 11.7% on the month and dipped 33.7% on the year, to 2.9GWh, accounting for 60.6% of the total production. Output of lithium iron phosphate (LFP) batteries extended its increase, rising 49.6% month on month while falling 34% year on year, to 1.8GWh, taking up 39.1% of the total output.

The rally in LFP battery production was boosted by the special-purpose NEVs. Meanwhile, less-than-expected battery installation at automakers accounted for the reduced output of ternary batteries. Some battery producers have scaled back production on mounting inventories.

Prices of refined cobalt rebounded in the week ended May 15, rising 10,000 yuan/mt from the previous week to 235,000-250,000 yuan/mt, while prices of cobalt hydroxide shed $0.2/lb on the week to $9.6-10.2/lb, SMM assessed.

Relatively firm prices of cobalt in the international market, together with some downstream purchases buoyed the domestic cobalt prices, which stayed at the lowest level in nine months. Prices of raw materials such as cobalt hydroxide eased as Chinese smelters anticipate the arrival of imports from South Africa in June-July after the country in early-May lifted port restrictions imposed to curb the coronavirus pandemic. But the slow resumption of shipment capacity at South African ports will likely keep raw materials prices stable in the near term. 

SMM assessed the average prices of cobalt sulphate at 45,000-47,000 yuan/mt last week and prices of cobalt chloride at 53,000-56,500 yuan/mt, up 500 yuan/mt and 250 yuan/mt, respectively, from a week ago. Prices of battery-grade nickel sulphate, meanwhile, lost 500 yuan/mt on the week to 23,000-23,500 yuan/mt.
Cobalt salt producers lifted quotes given costs of cobalt raw materials while downstream consumers remained cautious about restocking. Cobalt sulphate was mostly traded at prices of 45,000 yuan/mt, while trades of cobalt chloride were thin, with prices at 55,000-56,000 yuan/mt. 

According to SMM assessments, prices of cobalt (II, III) oxide added 1,000 yuan/mt on the week to 171,000-176,000 yuan/mt, on the backdrop of increases in cobalt salt prices.
Quotes for cobalt (II, III) oxide were heard at as high as 180,000 yuan/mt but the prices were barely accepted by downstream producers of lithium cobalt oxide (LCO). 

SMM assessed prices of ternary precursor NCM523 at 71,000-73,000 yuan/mt for the week ended May 15, with prices of NCM622 at 78,000-81,000 yuan/mt, both flat from a week ago. 
Producers of ternary precursors found difficulties to raise offers as downstream producers of ternary materials remained in a destocking phase and overseas orders had yet to pick up. 

SMM assessed prices of battery-grade lithium carbonate 750 yuan/mt lower on the week, standing at 43,000-44,000 yuan/mt, with prices of industrial-grade materials falling 1,250 yuan/mt to 34,000-39,000 yuan/mt.

Sluggish demand and mounting inventory pressure led to offers as low as 33,000 yuan/mt for industrial-grade lithium carbonate in the market. Some major producers of lithium carbonate have shifted capacity to industrial-grade materials as the continued weakness in the new energy vehicle market depresses consumption of battery-grade lithium carbonate. Smelters in Qinghai began shipments in late-April and tended to destock at prices lower than the mainstream traded prices. 

SMM assessed prices of battery-grade lithium hydroxide (coarse particle) unchanged on the week at 53,000-59,000 yuan/mt amid muted trades. 
Prices of LCO, which is used to produce 4.35V batteries, climbed 500 yuan/mt from a week ago to 192,000-196,000 yuan/mt, in line with increases in cobalt raw materials prices.
SMM expects prices of LCO to still face some downward pressure as downstream LCO battery plants demanded lower prices on falling prices of lithium products. 

Prices of ternary materials NCM523 and NCM622 were assessed at 111,000-118,000 yuan/mt and 131,000-139,000 yuan/mt, respectively, both unchanged from a week ago. 
Export orders at ternary materials plants have not resumed given the slow resumption of work for overseas automakers. Purchases by domestic battery mills were also limited as battery makers focus on destocking. 

SMM assessments showed that prices of LFP used in power batteries declined 1,500 yuan/mt on the week to 35,000-38,000 yuan/mt, weighed by reduced prices of lithium carbonate and iron phosphate. 
Procurement from the energy storage 5G base station market expanded from that in April, but an oversupply of LFP prompted producers to scramble for orders, resulting in lower LFP prices that were close to costs. 

Subdued foreign orders also extended the slide of lithium manganese oxide (LMO) prices. 
SMM assessed prices of LMO used in high-energy-density lithium-ion batteries shrank 250 yuan/mt on the week to 21,500-29,500 yuan/mt as of May 15, with prices of LMO used in power batteries dipping 500 yuan/mt to 33,500-35,500 yuan/mt.