Cobalt Prices Continue To Slump

- Oct 14, 2019-

As the price of cobalt continued to fall, the trend of the surge in profits of cobalt companies suffered an inflection point.

In 2018, the price of MB cobalt rose from $36/lb at the beginning of the year to a high of $43.7/lb in the year, but it has fallen sharply since the second quarter and continues to be sluggish. As of the end of the year, cobalt prices have fallen to $26.5 per pound, a 39% drop from the previous year's high.

Faced with the continued sluggishness of cobalt prices, Huayou Cobalt and Shengyu Mining, which are mainly engaged in cobalt products, experienced a decline in profits last year.

Shengyu Mining's financial report shows that the company's cobalt materials business achieved operating income of 3.082 billion yuan, up 31.36% year-on-year; net profit was 420 million yuan, down 31.14% year-on-year.

Shengyu Mining said that this was mainly due to the sharp fluctuations in cobalt prices in the second half of last year, and the profit contribution from cobalt business decreased. Last year, the company's gross profit margin was 18.62%, down 12.21% year-on-year.

Another cobalt giant, Huayou Cobalt, achieved revenue of 14.451 billion yuan in 2018, up 49.7% year-on-year; net profit was 1.528 billion yuan, down 19.38% year-on-year. Affected by the increase in operating costs, the gross profit margin of cobalt products also declined, down 5.15 percentage points year-on-year.

In addition, due to the impact of the total inventory depreciation of 740 million yuan, Huayou Cobalt deducted a net profit loss of 406 million yuan in the fourth quarter.

The financial report shows that rising costs are dragging down the performance of Huayou Cobalt. In 2018, the company's total cost was 1.501 billion yuan, up 70% year-on-year, far exceeding the increase in operating income.

As the world's second largest cobalt producer, Luoyang Molybdenum's revenue and net profit both increased last year, but the growth rate dropped sharply.

In 2018, Luoyang Molybdenum achieved a revenue of 25.963 billion yuan, a year-on-year increase of 7.52%; the net profit attributable to shareholders of listed companies was 4.6 billion yuan, a year-on-year increase of 69.94%.

In 2017, the company's revenue increased more than doubled year-on-year, and net profit increased by 173%.

Luoyang Molybdenum said that due to rising procurement costs, the gross profit margin of related businesses in 2018 was 36.19%, down 3.84 percentage points year-on-year.

The slowdown in profit growth is also in the cold-cobalt industry. In 2018, due to the growth of production and sales of copper and cobalt products and the growth of demand for ternary power batteries, the performance of Hanrui Cobalt continued to grow. However, compared with the year-on-year increase of 5 times in 2017, the estimated profit of 2018 is only 701 million to 751 million yuan, a year-on-year increase of 56%-67%.

In 2017, MB cobalt prices increased from $14.7/lb at the beginning of the year to a high of $44/lb, nearly double the increase. Affected by this, the performance of cobalt enterprises in the year has generally increased substantially.

The UK Commodity Research Institute CRU predicts that prices in the first half of 2019 will continue to decline as a result of oversupply of metals and upstream cobalt products. In the next few years, cobalt supply is expected to remain small, but as the demand for cobalt in the electric vehicle sector increases, the medium-term will turn into a short supply. It is widely expected that cobalt prices should fluctuate between $20 and $30 per pound.

At the end of March this year, many ministries and commissions jointly issued the "Notice on Further Improving the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles", clarifying that the subsidy standard in 2019 has declined by an average of more than 50% on the basis of the previous year. According to the subsidy rate proposed by the subsidy New Deal, the ternary battery companies will face greater price pressure. In order to reduce costs, battery and materials companies will accelerate the development of high-nickel ternary materials, or special lithium iron phosphate batteries.

High-tech lithium batteries believe that the cost reduction measures of ternary battery companies may lead to a reduction in demand for cobalt products, which in turn will have an impact on the cobalt materials business of upstream companies.

In the face of rising raw material mining costs, cobalt prices and gross profit decline, companies are also improving their competitiveness by expanding their industrial chain layout while implementing technological transformation, project expansion, and increasing production and recycling rates.

Huayou Cobalt is accelerating the layout of downstream ternary precursor projects. The company produced about 12,800 tons of ternary precursors last year, an increase of 20.24% over the previous year, and sales volume reached 13,100 tons, an increase of 57.39% over the previous year.

In March 2018, Huayou Cobalt announced that it will invest 6.37 billion yuan to build a new energy material intelligent manufacturing base with a capacity of 150,000 tons of lithium battery ternary precursor.

The company also said that in 2019, it will focus on the positive materials and ternary precursor projects of the four joint ventures of POSCO and LG Chemical, as well as the ternary precursor project invested by Huahai Industrial Fund.

Luoyang Molybdenum has enhanced its influence in the non-ferrous metals industry through overseas mergers and acquisitions. In 2018, the company announced the acquisition of IXM, the world's third-largest base metals trader. Currently, the acquisition has been reviewed by anti-monopoly agencies including China, South Korea and Brazil, and is expected to be completed by the middle of this year.