Sunrise Energy Metals Ltd SREMF

Cobalt: Imminent Price Turnaround

[reeJoey]

Increased cobalt demand, low-grade premium hint at imminent price turnaround

Large volume inquiries for spot cobalt units returned in the first half of the week, leaving market participants to suggest prices are close to bottoming out after 15 consecutive weeks of declines.

In addition to increased demand, buyers reported particular difficulty securing low-grade briquettes and broken cathodes in Rotterdam, pushing the market to a premium over high-grade material.

Metal Bulletin assessed low-grade cobalt prices at $33.20-34.50 per lb, in-warehouse, on Wednesday August 15. High-grade prices settled $0.25 per lb cheaper on the high end of the range at $33.20-34.25 per lb on the same day.
  
Low-grade cobalt business was reported as high as $35 per lb midweek, with the majority of business, bids and offers either side of $33.50 per lb. By comparison, the highest high-grade sale was reported at $33.70, again with most indications either side of $33.50, but far less interest in material.

In addition, market participants spoken to by Metal Bulletin indicated that the low-grade market was trading with a differential between flat (as had been the case for the previous Friday’s assessment) and a premium of as much as $1 per lb compared with high-grade.

“There’s an undeniable shift [in the grades],” a trader said. “The scarcity [of broken cathodes and briquettes] has been hidden by negative sentiment, but [the scarcity] is here to stay.”

Broken cathodes and briquettes have been the forms of cobalt metal most sought after by the booming battery sector over the past 18-24 months, but no increase in their supply is on the cards.

Despite that, cobalt prices have fallen continuously since May, with cheap selling from China meeting weak summer demand elsewhere. Consumers have since been purchasing only their minimum required volumes, and typical spot sales have amounted to between 1 and 5 tonnes in recent weeks.

But market participants have regularly commented that underlying fundamentals are unchanged, with demand robust and material - especially sought-after broken cathodes and briquettes - in tight supply.

At the same time, additional supply from China has meant improved availability of cut cathodes, and increased competition for sales where customers can accept material from a variety of brands.

“I’m more worried about selling cut cathodes [than broken] because of the pressure coming from Chinese material - it’s harder to compete,” a distributor said.

“There are a lot more suppliers holding cut cathodes and a lot more suppliers keen to sell their cut cathodes than their chemical grade inventories. [That means] on average, high-grade is at a discount,” a second trader said.

Sources also reported a marked increase in demand - both in the number of inquiries and their associated volumes - in the first half of the week, with buyers finding larger clips hard to come by.

“It’s difficult to buy good broken [cathodes]. Sellers would prefer to offer off-grade, and it’s hard to get big tonnages; you end up getting bits and pieces from different sellers,” a third trader said.

Some buyers said they had a preference for buying prompt material but added that they would accept October units in order to secure their required volumes before prices rebound.

Reading into the bullish signs of tight supplies and a recovery in demand, market participants cautiously labeled the market as at, very close to or already past the bottom.

“I said I’d buy at the bottom, but that time may have already passed,” a buyer said. “I’m not even sure I could buy below $34 today."

“I’d buy at $33, but I haven’t found a kilo. I bid a few traders [at that price] and they rolled their eyes,” a second buyer said. “You always see the largest volumes at the top and the bottom of the market… all indications are that we have hit the bottom and there are just a few stragglers keeping it down."

On the whole, cobalt prices continued to fall in the first half of the week, with the apparent recovery in demand not enough to offset cheap availability from China and negative sentiment. 

Low-grade and high-grade prices were down 1.2% and 1.6%, respectively, on August 15.

“We continue to get unsolicited offers from the Chinese on account of cashflow pressures,” the second trader said. “Europe is tight, but there is material coming out of Asia.”

Bearish cues from elsewhere in the metals markets are also keeping sentiment down, a fourth trader said.

“The scrappies, or anybody who’s long cobalt, nickel or copper, are still offering cheap material,” this trader said. 

And after an unrelenting decline in prices since May, some customers are still holding out to see if cobalt prices fall any further. Other buyers have yet to return from their summer break.

“Not everything is translating into business yet; buyers are taking their time and in some cases delaying,” the second trader said. “The summer lull is slowly coming to an end, and at some stage, the consumers will have to come in and cover, but I don’t really sense the sentiment change just yet."

https://www.metalbulletin.com/Article/3827619/Search-results/Increased-cobalt-demand-low-grade-premium-hint-at-imminent-price-turnaround.html