A Detailed Analysis of the Reasons Why Cobalt Salt Prices Stopped Falling

SHANGHAI, Jun 13(SMM) - 

Expected amount of raw material arrivals fell

After the floods in Durban, South Africa in mid-April, the shipment of intermediate goods almost came to a standstill until mid-May. The arrivals of intermediate goods at domestic ports was projected to drop from late May to early June according to the arrival of ships (3-4 weeks). Coupled with the muted cobalt market in April and May, some cobalt salt plants have negotiated with miners to postpone the delivery, so it is expected that the arrivals of intermediate products in May will drop by 1/3 compared with April.

Smelters reduced the production amid the sluggish market

Intermediate product smelters: Affected by the pandemic since late March, the downstream operating rates were lower than expected and enterprises tended to be cautious in purchasing cobalt salt amid the supply surplus at that time. Cobalt salt prices continued to fall as the inventory increased. Most of the cobalt salt factories suspended or reduced the production in May. Some plants in Jiangsu and Guangdong stopped the production, while some plants in Jiangxi and Guangxi only produced for tolling orders. The rest of the intermediate products smelters have reduced cobalt salt output sharply. China’s output of cobalt sulphate stood at 4,642 mt in metal content in May, down 29% month-on-month. Although the output has declined, finished product inventories at intermediate cobalt salt plants still hovered at a high level.

Recycling material smelters: The prices of refined cobalt slumped in April and May. As one of the pricing bases of recycling material, the fluctuations of refined cobalt prices made recycling material smelters cautious about raw material procurement. Coupled with the market conditions dragging down their production enthusiasm, the output of cobalt salt produced by recycling material smelters dropped slightly compared with last month, and finished product inventory was low.

Demand for precursor is expected to rise steadily after the improvement of the pandemic

The terminal car enterprises suspended the production and the output of PCAM enterprises was less than expected in April and May due to the pandemic in Shanghai.  The terminal car enterprises have resumed the production in late May and Shanghai has been lifted from the COVID lockdown in June, which is bullish for terminal demand. Due to the force majeure in Q2, the expected production capacity was not released. In order to encourage the development of the new energy market, China introduced the subsidy policy for car consumption, which may stimulate the demand. Based on the terminal and battery material data, output of precursor may achieve steady growth in June and July. The production capacity that was not put into production in Q2 is expected to be released in Q3 and Q4, which will drive up the demand for precursor.

From the reduction of raw material inventory at precursor plants to the reduction of finished product inventory at cobalt salt plants

The precursor manufacturers mainly consumed raw material inventory in April and May with few market purchases, and raw material inventory has almost been depleted after two months. As the demand for precursor picked up, the next move is to consume the finished goods inventory at cobalt salt plants as the inventory remained high, especially intermediate goods smelters.

The impact of MB cobalt prices on domestic cobalt prices

Someone may ask that since domestic cobalt prices slumped when MB moved in an upward trend before, but why domestic cobalt prices stabilised when MB fell?

Since April, the sluggish cobalt market has led to a wider gap between the selling prices of domestic cobalt and its cost. As the largest consumer of cobalt in the world, Chinese smelters can not bear the huge losses, which has been transmitted to the overseas cobalt ore market. MB discount coefficient fell recently, which aims to address the excessively large price spread to maintain the stable operation in the market.

Recycling plants were out of stock while the cost of intermediate product plants was high

From the recent spot transactions, recycled material plants have cost advantages over intermediate cobalt salt plants, so shipments were made smoothly, and the purchase price ranged between 75,000-80,000 yuan/mt. There has been few spots left at recycled material plants after a few weeks of restocking by the large precursor plants in Zhejiang, large cathode material plants in Hunan and some medium-sized precursor plants. As such, the quotation of intermediate cobalt salt plants took a greater weight, which generally held their prices above 80,000 yuan/mt due to higher costs, and the quotations played a role in stopping the decline in cobalt prices.