The price spread between chemical and alloy-grade cobalt metal has widened in Rotterdam in the past week, with both markets on the rise but alloy grade registering a particularly steep jump on strong demand and tightened availability of non-Chinese material.
Prices for alloy grade on 29 June were assessed at $16.75-18.75/lb duty unpaid, up by 2.9pc on the day, while chemical grade rose by 3.3pc to $15.00-16.50/lb duty unpaid. This put the spread between the top end of alloy grade and the low end of chemical grade at $3.75/lb, up from $2.90/lb a week earlier and the widest spread between these products since December 2018. Prices have since risen further, with the news of a tender for the Chinese State Reserve Bank (SRB) for over 5,000t of metal. Alloy grade prices rose on Tuesdya to $18-19.75/lb, while chemical grade prices rose to $16-17.50/lb.
Overall demand for alloy-grade cobalt has been boosted by planned military build-ups in several NATO countries and super-alloys used in gas turbines that have been in greater demand in Europe because of the region's energy crisis. Many of these consuming sectors have their operations in the US, meaning they can use cobalt only from non-Chinese sources, availability of which is limited. "The metal market is massively bottlenecked by grade requirement and trade restrictions in the US," a market participant said.
Furthermore, consumers of alloy grade often also use several other relatively costly aerospace metals and are not necessarily deterred by a higher spot price, giving sellers of alloy grade scope to keep testing higher offers. "Someone making an F-35 fighter jet couldn't care less if cobalt was $100/lb," a trader said.
Procurement planning and a narrative of oversupply have also played a role in shaping price spreads. Most consumers of cobalt metal until recently had taken quite a relaxed approach to restocking, watching global cobalt prices fall since April-May last year when it was widely believed that the market would be in a surplus of 10,000-15,000t this year. But supply of non-Chinese alloy-grade metal is now being squeezed and buyers are hitting the market. "We've been getting enquiries for about 1,000 t/month," the trader said. "All the consumers aren't covered because the narrative has been that the market is in oversupply. One customer who was using 20 t/month is now looking for 60 t/month for the next year."
Supply balance shifts
Talk of a global surplus this year and a steep drop in prices from the highs of April-May 2022 have triggered a supply-side response, suddenly changing the tone of the market since late May this year, particularly for alloy grade, given US requirements about grade and origin.
At the Cobalt Institute's conference in Istanbul last month, there was widespread talk of chronic oversupply caused by a glut of cobalt hydroxide being produced in the Democratic Republic of the Congo (DRC) and additional material coming on stream as Indonesia expands its nickel production. A build-up of inventories at the world's largest cobalt mine, Tenke Fungurume Mine (TFM) in the DRC, was also expected to enter the market after a ban on exports from the mine was lifted by authorities.
But since May, there has been a slowdown in supply from central African artisanal mining — usually the most reactive sector when prices fall — with some operations shifting focus to produce more copper concentrate. "Things have been shifting in the supply space," a DRC mining firm analyst said. "There's a sudden change in the mindset of Chinese refineries. Artisanal [production] has significantly decreased, and some smaller mining operations have closed."
Furthermore, logistical delays have hindered transit routes between the DRC and South African ports. The restart of TFM's exports has caused congestion, which was anticipated by mining firms in the region but has caught Chinese buyers off guard, according to market participants.
"The ban on Tenke is lifted, but it was a pipe dream for material to arrive in July," a cobalt producer said. "We think August to September. The border crossings are clogged again."
When hydroxide prices rise, it often becomes economical to dissolve metal instead of producing sulphate directly from hydroxide. If hydroxide prices increase, the spread between alloy-grade metal and chemical grade could narrow, as chemical-grade prices are pushed up by demand from cobalt salts refineries. Cobalt hydroxide prices were last assessed on 29 June at $8.00-8.30/lb cif China, up by 1.24pc on the day.
