Cobalt metal prices diverge on demand shifts

Global cobalt metal prices have diverged on a reversal in demand across global markets, with strength now coming from aerospace and alloying applications, and weakness in chemical markets feeding certain types of battery.

The divergence in prices in Europe in the past few weeks has given the clearest example of the trend happening across global markets. On one side, chemical-grade metal prices have fallen to $21.25-22.50/lb duty unpaid in Rotterdam, down from $25.80-26.30/lb at the beginning of the quarter on 3 October. Alloy-grade metal prices have declined but held much firmer, assessed at $23-24/lb on 6 November, down from $25.80-26.80/lb on 3 October. The divergence of the market is more visible looking at the spread between alloy-grade pricing in Europe and metal prices in China. Prices in China are down to 318-345 yuan/kg ($20.67-22.43/lb). Chinese metal has weighed on the bottom end of the European market as Chinese producers have offered material into that market. But in the US, Chinese metal is subject to tariffs, meaning prices have resisted the sharper fall experienced by European chemical-grade prices, remaining at $22-23/lb. There has been disagreement among market participants about the market direction for a number of months, as aerospace-facing traders are more positive about demand, while those selling chemical grades of cobalt see weaker buying interest for their products. There have been reports of much lower sales prices for cobalt metal in the market, which has swayed some sections of the market to lower price expectations in what some traders see as an overreaction. "Chemicals markets are weak, nobody is denying that, but there's a deficit for western-grade cobalt going toward the US market," said one trader. "At year-end there's always a fire sale but it's particularly bad this year because of the macro environment," said another European cobalt trader. The disconnect has fed into long-term contract negotiations this year, with many market participants reporting delays to agreements, especially in the battery chemical-facing sector. One trader said their customer was pushing for an extension to the previous year's contract until the end of the first quarter, to burn down inventories because demand for cobalt sulphate and tetroxide has been so low. Again, in contrast, another trader said an aerospace consumer was looking for an extra 25pc on top of the previous year's contract volumes, indicating strength in the sector. "The wider market is that the alloy guys have been booking, chemical guys have not booked or are delaying," said one trading firm.

Aerospace markets rebound after pandemic

As commercial aerospace manufacturers increase their run rate to meet returning international travel, demand for aerospace-linked metals, including cobalt, is set to increase next year. For instance, hafnium, which is used in several applications alongside alloy-grade cobalt metal, including gas turbines and aerospace alloys, has seen demand increase sharply for contracts next year and spot prices rise in response. Argus' assessment for 99pc grade hafnium with 1pc zirconium rose to $2,220-2,500/kg in warehouse Rotterdam on 8 November, up from $1,800-2,000/kg on 3 November, the highest since Argus' assessment was launched in 2015. Titanium prices too, heavily linked to aerospace demand, have risen this quarter, with the Argus-assessed quarterly TG100 long-term contract price up on 3 October to $9.80-11/kg from $7.80-8.80/kg in the previous quarter. Titanium 6Al 4V ingots in the US, long a bellwether of aerospace market demand, have risen steadily throughout the year to $12.50-13.50/lb fob US producer, up from $8-8.25/lb at the start of the year. The US market accepts only certain brands of cobalt metal, from western producers, which are set to be in short supply next year because of announced supply deals or, in the case of a Norwegian producer, strike action affecting production. Buyers are also becoming more selective about the cobalt they consume, meaning some Chinese and Cuban-linked suppliers are unable to sell into the US market. "ESG policies have gathered apace and that's preventing some of the cheap material from filling those gaps," said one metal trader.

Malaise in Chinese markets lifting

The demand downturn resulting from China's strict Covid-19 policies could dissipate in the coming months, reversing the bifurcation trend within the cobalt market. Since China went into sporadic local lockdowns in March, there has been a sharp drop in demand for electronics batteries and electric vehicle (EV) batteries. While the EV market recovered, the electronics sector recovery failed to materialise, resulting in a swift downturn in cobalt prices in China. A report by the Cobalt Institute put electronics batteries as the second-largest end-use market for cobalt metal in 2021, at 31pc of total consumption, second only to EV batteries, which were at 34pc of overall consumption. After turbulence in recent weeks, though, the Chinese government appears to be easing Covid-19-related restrictions, opening up the prospect of a sharp recovery in these markets. Most market participants believe that there will need to be a period of stock burndown at cobalt chemical and battery producers though, before any real demand can raise cobalt metal prices in China.

By Thomas Kavanagh