China EV slowdown weighs on Umicore sales

Belgian battery materials producer Umicore blamed slack growth in Chinese electric vehicles (EV) for weaker-than-projected sales in its cathode materials unit.

Umicore had projected cathode material sales of 100,000t by 2019 and 175,000t by 2021. The company now expects to reach those targets in another 12-18 months.

Umicore's revenues fell by 3pc on the year in the first half of 2019 and its profits decreased by 8pc to €151mn ($168.3mn).

A drop in cathode material sales, including cobalt materials, is the result of a slowdown in the pace of EV growth in China, the company said. The pace of EV growth fell to 63pc in January-June 2019, from 105pc in the first half of 2018. The Chinese government in March announced deeper-than-expected cuts to subsidies for EVs and the termination of all regional subsidies.

Umicore also pointed to falling sales of lithium cobalt oxide cathodes and subdued global demand for portable high-end electronics such as smartphones and tablets. This has resulted in high levels of smartphones and tablets in the supply chain inventory, as consumers are not upgrading to newer models and technological advances have been incremental.

Sales of cobalt and speciality materials were hit by lower cobalt prices after large-scale de-stocking by cobalt producers. Chemical-grade cobalt prices in Europe were assessed at $12-12.60/lb on 30 July, their lowest since November 2016. An influx of cobalt from artisanal mines that can be sold at a discount on the market has also weighed on prices.

Positive long-term outlook

The long-term outlook for Umicore's cathode material business is positive, despite China cutting its subsidies.

Support in the Chinese market will come from new measures introduced by the government — including sales tax exemptions and the removal of registration plate limits — to encourage EV sales.

In Europe, new legislation targeting vehicle pollution is expected to widen the market for EVs. Most carmakers have committed to the extensive electrification of their fleets, with many new models to launch in 2020 and 2021.

Volkswagen, Europe's largest carmaker, has announced it will introduce almost 70 EV models by 2028 and aims to sell 22mn EVs in the next 10 years.

Meanwhile, Umicore is acquiring Freeport Cobalt's refinery in Kokkola, Finland, a move it should complete by the end of this year. Umicore has also signed an offtake agreement with trading firm Glencore to shore up its supply chain.