Viewpoint: Falling cobalt prices belie positive outlook
After a volatile year, cobalt prices ended 2019 on a downward trend, but the medium-to-long term outlook remains strong, with prices expected to recover.
European cobalt prices began 2019 at $27-30/lb for chemical-grade metal and $26-29/lb for alloy-grade product, having fallen from record highs of over $40/lb in April-June 2018. They continued to fall on weak demand and oversupply until April, when prices bottomed at around $12-13/lb before bouncing back. Since then, prices have fluctuated in a range of $13-18/lb.
The most recent fall is because of low chemical demand in China and destocking towards the end of last year. There is additional pressure on the market because of continuing long-term contract negotiations. Prices are now at $15.75-16.30/lb for chemical-grade metal and $16.30-16.80/lb for alloy-grade metal.
This has not discouraged traders from purchasing material to build positions. Traders who do not commonly engage with cobalt have bought into the market, expecting price rises in the first quarter of 2020.
Supply to tighten
Fundamentally, the outlook for cobalt in 2020 is strong.
Cobalt supply is dominated by a few large producers. The biggest of these, Switzerland-based Glencore, had excess stocks throughout 2019 and the global market was in surplus for most of the year. But this is changing.
Glencore has closed its largest copper-cobalt mine in the Democratic Republic of Congo (DRC), Mutanda — which was the largest source of mined cobalt in the world. The company has revised its output of cobalt down to 25,000-33,000t in 2020 from 43,000-47,000t in 2019.
Most cobalt at Glencore will now be produced at the Katanga mine in the DRC. Katanga output was supposed to be higher at this point in its life cycle, but ramp-ups were delayed because of impurities in its production. The mine is not expected to be fully operational until 2021.
Glencore has also signed several large supply agreements this year. It signed a long-term agreement in May with Belgian battery chemical manufacturer Umicore for cobalt hydroxide. In October, it extended an agreement with China's GEM for cobalt hydroxide. Glencore will supply the Chinese recycler with 61,200t of hydroxide in 2020-24.
Glencore signed its most recent deal in November, with South Korean battery producer SK Innovation for supply of 30,000t in 2020-25. There are other large volume contracts, but the details have not been made public.
With a large portion of Glencore's available stock tied up in contracts, questions over the availability of spot supply linger, with no easy answer.
Capacity growth slows as demand rises
The world's second-largest mine, China Molybdenum's Tenke site in the DRC, has no plans to increase production.
Luxembourg-based Eurasian Resources Group's new Metalkol RTR project in the DRC could potentially fill the hole left by Mutanda. It was expected to produce around 8,000t in 2019 and ramp up to around 14,000t in 2020, but Metalkol has hit significant delays.
Problems with impurities in output and falling prices have hindered Metalkol's ramp up in operations.
This comes as spot demand from Chinese companies in January-February is increasing compared with last year, large producers have said. Investments in electric vehicle (EV) infrastructure will continue to support demand for cobalt throughout 2020. US EV maker Tesla opened its third Gigafactory in Shanghai in early December.
With the world's largest mine out of operation, Glencore supply sold forward and no producer able to fill the gap, early 2020 could see a rebound of cobalt hydroxide prices, with metal prices to follow.
By Thomas Kavanagh
Related news posts
Potential strike threatens Vancouver port again
Potential strike threatens Vancouver port again
Calgary, 13 May (Argus) — A labour dispute at the Canadian port of Vancouver could result in another work stoppage, less than a year after a strike disrupted the flow of more than C$10bn ($7.3bn) worth of goods and commodities ranging from canola and potash to coking coal. Negotiations between the British Columbia Maritime Employers Association (BCMEA) and the International Longshore and Warehouse Union (ILWU) Ship and Dock Foremen Local 514 union have stalled as the two sides try to renew an agreement that expired on 1 April 2023. A 21-day "cooling-off period" concluded on 10 May, giving the union the right to strike and the employers association the right to lock out the workers. A vote and 72-hour notice would first need to occur before either action is taken. The BCMEA filed a formal complaint to the Canada Industrial Relations Board (CIRB) the same day, which had to step in last year in another dispute. The BCMEA locked horns with ILWU Canada over a separate collective agreement in 2023 leading to a 13-day strike by the union in July. This disrupted the movement of C$10.7bn of goods in and out of Canada, according to the Greater Vancouver Board of Trade. Vancouver's port is the country's largest — about the same size as the next five combined — and describes itself as able to handle the most diversified range of cargo in North America. There are 29 terminals belonging to the Port of Vancouver. Terminals that service container ships endured the most significant congestion during last year's strike. Loadings for potash, sulphur, lumber, wood pellets and pulp, steel-making coal, canola, copper concentrates, zinc and lead concentrate, diesel and renewable diesel liquids and some agri-foods were also disrupted. The Trans Mountain-operated Westridge Marine Terminal responsible for crude oil exports on Canada's west coast was unaffected. A deal was eventually reached on 4 August. The strike spurred on proposed amendments to legislation in Canada that would limit the effect of job action on essential services. A bill introduced in Canada's Parliament in November would update the Canada Labour Code and CIRB Regulations accordingly. The bill has been progressing through the House of Commons, now having completed the second of three readings. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Mexican power outages enter fourth day
Mexican power outages enter fourth day
Mexico City, 10 May (Argus) — Mexican power grid operator Cenace issued its fourth consecutive day of operating alerts amid the heatwave gripping the country. Net electricity demand reached 47,321MW early today, with deployed electricity capacity slightly below at 47,233 MW, according to Cenace. Since 7 May, Cenace has declared emergency operating alerts as demand exceeded generation capacity during peak evening hours, prompting the grid operator to preemptively cut electricity supply across different states to maintain grid integrity. Power outages have lasted up to several hours in Mexico City and in major industrial states as power demand has outstripped supply by up to 1,000MW. Peak demand this week hit 49,000MW, just below last year's historic peak of 53,000MW during atypical temperatures in June. "We are very concerned about the unprecedented outages detected across 21 states, a situation that affects the normal functioning of Mexican companies," national business chamber Coparmex said. Peak electricity demand typically rises in June-July but temperatures this week have risen as high as 48°C (118° F) across some states. Mexico City reported a record high of 34.3°C on 9 May and high temperatures are forecast to continue into next week, Mexico's national weather service said. The inability of Mexico's grid to respond to increased demand is because of insufficient power generation capacity, non-profit think-tank the Mexican institute for competitiveness (Imco) said this week. "Despite the energy ministry's forecast that 22,000MW of new power capacity would enter service by 2026, only 1,483MW had entered service as of 2022" since late 2018, Imco said. President Andres Manuel Lopez Obrador's administration pledged to build new generation capacity, including five gas-fired, combined-cycle plants, but recognized this week that delays had contributed to the power outages. "We have an electricity generation deficit because some of the combined-cycle plants were delayed, but we are working on it and it will soon be resolved," Lopez Obrador said on 9 May. Lopez Obrador's government has also curtailed private sector power development during his administration. Mexico needs to upgrade and expand its transmission network, industry associations say. "In order to resolve this problem, we believe that a reopening of the electricity market to the private sector is imperative," Mexico's wind energy association, Amdee, said. Mexico has 87,130MW of installed capacity, with 39.5pc from combined-cycle gas-fired power plants and 31pc in renewable power, including wind, solar, hydroelectric, geothermal and biomass, according to the latest statistics from the energy ministry. By Rebecca Conan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Tata Steel UK unions vote to strike
Tata Steel UK unions vote to strike
London, 9 May (Argus) — Workers at Tata Steel's Port Talbot plant in south Wales have voted to strike in response to the company's plan to stop iron-making and cut thousands of jobs. Over 3,000 members of Community Union have been balloted, with more than 85pc in favour of industrial action — this is despite the company threatening to withdraw its proposed support package in the event of strikes. "It should be noted this resounding mandate has been delivered in spite of the company's bullying and unacceptable threats to slash redundancy payments," Alun Davies, Community's national officer for steel, said. He urged Tata to "get back around the table" to prevent a major industrial dispute. Workers at Unite the union have already voted in favour of strike action, which is set for 30 May. Unions — and the Syndex consultancy that has represented them in talks with Tata — have called the company's agreement with the government a "bad deal". They have requested more financial support to help Tata with decarbonisation, and for a blast furnace to be maintained. The government is giving Tata £166/t towards its decarbonisation — less than many European competitors receive from their governments. The low level of state support played into Tata's decision to move to one large electric-arc furnace, which has been roundly criticised by unions. By Colin Richardson Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Turkey's new EAF capacities to trigger scrap shortage
Turkey's new EAF capacities to trigger scrap shortage
London, 9 May (Argus) — More companies will invest in electric-arc furnaces (EAFs) as part of their green transition, which will likely result in more demand for scrap amid tighter scrap supply in the medium term, market participants said at an industry conference in Istanbul today. The shift toward EAF production globally is set to boost scrap consumption, and could limit the availability of scrap for export markets. The majority of Turkish steel production is EAF based, with most new capacities coming on line also scrap-based. Potential legislative changes, such as those proposed in the UK to restrict scrap exports and protect local supplies, could further tighten the market supply. Such restrictions, coupled with rising scrap consumption, could intensify competition. Major steel producers in the EU and the UK are also transitioning to EAF production, significantly increasing their domestic scrap demand, resulting in suppliers focusing less on exports. Turkey has traditionally relied on imported scrap. Turkey should explore integrated production methods and consider hydrogen-based steel production systems, the general manager of Cag Celik Ercument Unal said. Adopting direct-reduced iron (DRI) technology would reduce the need for scrap, but will increase the demand for iron ore. Turkish steel producer Tosyali Holding anticipates globally hydrogen-based methods will account for 22pc of total steel production by 2050, following scrap-based methods, which are expected to contribute 40pc. There were no major changes in the steel production methodology in the past 50 years, except for some developments in automation and minor energy savings. However, current developments in hydrogen use will be more significant, Tosyali said. Tosyali recently completed its second DRI plant at its Algeria site and is currently building a third DRI, which will use 100pc hydrogen in production. "Every investment we make today regarding the green transition will be more economical than the trade measures we will face tomorrow," Tosyali chairman Fuat Tosyali said. Turkey has great potential for solar energy to produce hydrogen, director of Huawei Smart PV Turkey Eray Hazer said. One of the major Turkish mills bought 1GW of capacity, but this is only enough to cover 10-15pc of its production, so in order to generate enough electricity to run the DRI, higher solar power installation is required. There are a number of risks which can affect the Turkish steel industry, South Korean steelmaker Posco research and development deputy manager Dr Kisoo Kim said during the conference, including reduced exports due to the implementation of the EU's Carbon Border Adjustment Mechanism (CBAM), rising scrap demand causing supply shortages, and notably high output costs to produce green electricity. The latter could be eased by considering the nuclear power option as a bridge solution if public approval is achieved, he added. By Elif Eyuboglu Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more