European cobalt prices appeared to bottom out this week as Chinese buying activity picked up and market participants voiced growing concerns about hydroxide supply disruptions in the Democratic Republic of the Congo (DRC).
Prices were assessed unchanged yesterday at $15.30-16/lb for alloy-grade metal and $14.50-15.50/lb for chemical-grade metal, both on a du Rotterdam basis, having fallen steadily since early February, when prices stood at over $18/lb du Rotterdam. Most European market participants with stocks of alloy-grade cobalt were not prepared to sell at below $15.50-16/lb this week, with trading firms and producers noting a spike in enquiries for both metal and hydroxide, mainly from China. Buyers have also started returning to the market in Europe, but so far they have largely been traders looking to build positions ahead of expected future price rises.
Chinese buyers fear supply disruptions
The Chinese cobalt market has recovered at a quicker pace in the past two weeks after starting to return in March, with domestic cobalt metal prices rising to Yn230-250/kg ex-works on 14 May, up from an eight-month low of Yn225-245/kg ex-works on 7 May. And market participants expect sulphate prices to follow.
Chinese buyers of hydroxide have hiked their bid prices in recent days to try to secure material as producers in the DRC warned of potential supply disruptions in the coming weeks. Hydroxide prices had been holding stable because Chinese refineries had plentiful stocks when they returned to production in March, but stocks are now running low and prices are widely expected to rise as inventories are replenished.
Furthermore, Glencore — the world's largest cobalt producer — is already committed to several long-term contracts that have been publicly announced, while there are other term contracts that have not been disclosed publicly, a source familiar with the company said. With these contracts in place, there is not much material available for the spot market, lending further support to hydroxide offers.
Other large hydroxide producers have been less active in the spot market in recent weeks, reflecting difficulty in moving material out of the DRC because of Covid-19 lockdowns in southern African countries and civil unrest along transit routes in the east of the country going to Dar es Salaam port in Tanzania. And the route to Dar es Salaam through the south of the country and across Zambia has been blocked by Zambia closing its border with Tanzania.
Demand outlook mixed
Consumers in the aerospace industry have not made any new cobalt enquiries lately as the Covid-19 crisis continues to severely disrupt the aviation sector.
US aerospace firm Boeing has lost 16,000 staff since the beginning of the crisis, European counterpart Airbus is due to lose 10,000, UK national carrier British Airways has lost 12,000, while German carrier Lufthansa said it had around 10,000 excess staff who may need to be furloughed. These figures demonstrate the scale of damage in the aerospace industry and indicate that demand is unlikely to recover from the sector for at least the rest of this year.
In contrast, demand from the battery sector looks more positive. Electric vehicles (EVs) accounted for 6.8pc of new auto registrations in Europe in the first quarter of 2020, up from a 2.5pc share in 2019 and bucking the broadly downward trend across many parts of the automotive industry.
Carmakers recently discussed with the European Commission how to return to production following the easing of lockdown measures, with a particular emphasis on the new EU green deal. "The purpose of recovery measures should therefore be twofold — to restart the industry and to employ the full range of technology solutions that are available and needed for carbon neutrality," European Association of Automotive Suppliers (CLEPA) secretary-general Sigrid de Vries said. "Hand in hand with investments in renewable energy carriers and infrastructure, this will propel the green deal as well as safeguard employment and industrial activity in Europe."
The development of 5G technology is also leading a recovery in telecoms demand, which will lead to more cobalt demand from the mobile phone sector. Chinese shipments of mobile phones increased by 14.2pc year on year to 41.7mn units in April, data from the China Academy of Information and Communications Technology show, making last month the strongest since 2017.
