Viewpoint: Aero support increases for US cobalt

Rising US cobalt prices are leading some consumers to change their buying habits as market participants expect growing US aerospace and lithium-ion battery demand to provide further support in 2022.

The Argus price for minimum 99.8pc cobalt in the US more than doubled in a year to $33.10-33.90/lb on 28 Decemberfrom $15.40-16.15/lb on 5 January with support from industrial gas turbine and medical alloy consumption.

Increasing spot market prices have prompted some consumers to adjust longer term deals. These buyers are trying to negotiate fixed price contracts rather than the formula-based ones that are more common, according to market participants surveyed by Argus.

Consumers tend to request fixed prices for annual contracts when they anticipate steadily rising prices rather than volatile swings in prices over the course of the year.

One reason that market participants anticipate higher cobalt prices is because of increased demand from aerospace sectors that were hit hard by the Covid-19 pandemic and related restrictions. This sentiment comes as Boeing, one of the largest aircraft manufacturers, plans to increase production of the 737 MAX to 31 planes/month in early 2022 from its recent rate of 19 planes/month at the end of the third quarter.

Airlines that buy these planes are recovering from the economic downturn brought on by the Covid-19 pandemic in 2021, a trend which is forecast to continue in 2022 and will support aerospace manufacturing. Global passenger traffic dropped by 60pc to 2.7bn passengers in 2021 from 2019, according to the International Civilian Aviation Organization (ICAO). The ICAO predicts that passenger air traffic will be down by only 30pc in 2022 compared to 2019.

While demand returns in pandemic-hit sectors, cobalt market participants expect increased future chemical demand from US electric vehicle battery manufacturing plants that will start in 2022. General Motors (GM) plans to open a 30 GWh/yr lithium-ion battery plant in Lordstown, Ohio, in the first quarter of 2022, the first of two planned facilities together with South Korean battery maker LG Chem. SK Battery also plans to open a 9.8 GWh/yr plant in Jackson County, Georgia, in 2022, the first of two plants on this site.

While lithium-ion batteries consume cobalt chemicals such as cobalt hydroxide or sulfate rather than cobalt metal, higher demand for cobalt chemicals can support cobalt metal prices as metal refiners use these chemicals as feedstock.

This combination of returning aerospace demand and new demand from battery manufacturing should provide support to cobalt's upward trend into 2022.

By Andrew Saucer