Wait For The Cobalt Bottom To Pick Up

- Dec 18, 2019-

Since March 2018, the price of cobalt has plummeted, but now it seems to be entering a new starting point.


People in the small metal commodity investment market are closely watching the change in supply and demand of cobalt: 4 months ago, the European mining giant Glencore announced the official suspension of production of the world's largest cobalt mine, which had a significant impact on supply, but at the same time, As a downstream industry that depends on each other—the Chinese new energy vehicle market has ushered in a sudden decline—in the past month, the Chinese market has sold a total of 95,000 new energy vehicles, compared with 16.9 in the previous year. Ten thousand cars.


From the origin of cobalt-the Congo gold mine, to Chinese smelting plants, to global battery and electric car, and smartphone workshops, cobalt elements cleverly connect the world and make them inseparable overall.


Everyone can see a long-term positive future for cobalt. However, at the moment, positive and negative seem to be intertwined, full of uncertain downstream markets, making the short-term prospects of cobalt ambiguous. As the most important player in the global cobalt industrial chain, what trajectory the Chinese economy will follow in the next year has become the most important conjecture.


Cobalt traders are optimistic that they are waiting for the wealth feast of cobalt to come again.


Buy metal cobalt


Everything seems to be back to the origin. In July 2019, after 16 months of decline, cobalt fell from 700,000 yuan / ton to 200,000 yuan / ton. As before, it took about 18 months to increase from 200,000 yuan / ton all the way to 700,000 yuan / ton.


In December, a batch of metallic cobalt ordered by Shanghai Qian Cobalt Industrial Co., Ltd. in Canada arrived in Shanghai. From Canada to China, the shipping schedule takes about 20 days. Right now, there are still two months left for the shipment.


Thousands of cobalt is the largest trader in the Chinese metal cobalt market. In July this year, the company signed a one-year long order with upstream suppliers, importing 60-80 tons of metallic cobalt each month. If the price of cobalt continues to rise in the future, these imported cobalt metals will mean considerable profits.


General manager Wang Wentao judged that the cobalt price had bottomed out at this time. "In fact, 200,000 yuan has fallen below the cost line of cobalt. This price means that the entire cobalt-related industry chain is losing money. From raw materials, processing plants to traders, it is not immune. For factories and traders, Expenditure is fixed, and rent, personnel, and warehousing all require costs. As long as you have the goods in hand, you are losing money. "Wang Wentao told the Economic Observer.


The good news came. On August 7, Glencore, the commodity giant, announced that the Mutanda mine in Congo Gold will be shut down before the end of the year-this is currently the world's largest cobalt-producing mine, with an annual output of approximately 20% of global cobalt production.


The market has continued to speculate, and some believe that the high cost of mining in the later stages caused it to finally take the action of stopping production. Others believe that this is the strategy of the giants to actively adjust the supply to change the current bad market conditions. It is remembered that the company took similar action four years ago to boost the then sluggish zinc metal market, and zinc prices have doubled in less than three years since then.


Cobalt prices started a preliminary rebound. By the end of September, cobalt prices had risen to 300,000 / t. However, a new problem followed shortly: The new energy vehicle market, which is closely related to this small variety of metals, saw its first decline in years.


On August 12, 2019, the China Automobile Industry Association released its July automobile production and sales data. New energy vehicles sold 80,000 units in the month, which was almost a drop from the previous month.


Wang Wentao always pays attention to the changes in the new energy vehicle market: this is an industry closely related to changes in the price of cobalt. As one of the main materials for automotive battery cathode materials, cobalt plays an indispensable role in new energy vehicle manufacturing.


Data released by the China Automobile Industry Association once a month shows that the year-on-year decline in sales of electric vehicles is still further expanding, and the price of cobalt has fluctuated and dropped during this period. Until the last month, its price fluctuated around 250,000 yuan / ton.


This means that it is still difficult for traders now to have considerable profitability. However, Wang Wentao is not pessimistic right now. Instead, he is waiting for the cobalt price to rise again.


Mine action


In Central Africa, from the Lubumbashi of the Congo-Kin to Zambia, a copper-cobalt deposit with a length of more than 500 kilometers contains attractive copper-cobalt resources. Located on the surface, mining is easier. Locally, people will manually collect copper and cobalt ore from the surface, which has formed a rather special "hand-catch mine".


In 2018, hand-held ore contributed about 10,000 metal tons of cobalt-this is not a significant proportion of the entire market supply. The main production capacity comes from large and medium-sized mining companies that have been stationed here for a long time.


The giants ’mining machines, together with hand-held ore, supply more than 70% of cobalt ore resources to the global market. Cobalt metal also connects this African land with the distant mainland China: Globally, nearly 70% of the refined cobalt production capacity is concentrated in China, and the growing demand for batteries downstream will eventually transport this cobalt into cars and 3C Product workshop.


At the end of November 2019, the price of cobalt below the cost line finally forced Glencore to suspend production a month earlier. For other miners, some originally planned new mines were also postponed due to low prices, which made the actual increase in Congo's cobalt ore less than expected. However, some of the important expansion projects scheduled are still underway.


Song Ben (English name: BenediktSobotka), CEO of Eurasian Resources Group, has been frequenting China for many years, visiting the government, or participating in international high-end forums held in China. The mining company he heads supplies industrial materials such as ferrochrome and cobalt metal to Chinese companies. "Once MetalkolRTR is fully operational, Eurasian Resources Group will become the world's second largest cobalt producer and China's largest cobalt supplier," Song Ben told the Economic Observer.


Song Ben is a steadfast bullseye. Met-alkolRTR is a cobalt mine of Eurasian resources. It is a cobalt-copper tailings reprocessing project located near Concorz in Kincoluzi. Production of this project started in October 2018. Song Ben introduced that the production of the first-phase project is currently increasing. And accelerate the progress of the second phase of the project.


"The current cobalt price is unsustainable because it does not correspond to strong cobalt demand growth. If the current price is reached, 20-30% of global cobalt ore supply will be at risk of disappearing in 2020," Song said.


Wang Yun, general manager of Eurasian Resources China, told the Economic Observer that Congo ’s cobalt miners are working to reduce local hand-held mines. In addition to human rights considerations, it is also conducive to maintaining a healthier to a certain extent. Cobalt industry market. In fact, for the Congolese government, a large supply of cobalt may mean a decline in prices, and the local government needs to weigh the overall economic benefits brought by the changes in the cobalt market to the country.


According to statistics from domestic non-ferrous metal industry related consulting and research institutions, in 2018, the global output of cobalt raw materials was about 135,000 tons, and it is expected to reach 144,000 tons in 2019. The agency calculates that by 2020, cobalt raw materials from mines will increase output by about 5,000 tons.


The above agencies predict that with the suspension of Glencore Mutanda in 2020, the slow progress of some projects in the DRC and Zambia, and the decline in the output of manual ore, the growth rate of global supply of cobalt raw materials will continue to slow, the supply and demand pattern will tighten, and the price of cobalt will change This is increased by about 12%.


Antaike Cobalt Industry Analyst Liu Lei calculated a balance: Glencore's Mutanda mine was shut down, but Glencore's other mines, Katanga, Eurasian Resources are moving towards the production of RTR tailings, and the UAE and China The company's expansion plans in the Congo gold mines are enough to make up for the gap in production capacity brought by the suspended mine. Once the market conditions pick up, the local mine production may once again rebound.


Automotive and 5G


In the past few months, monthly new energy vehicle sales data looks increasingly ugly: on the eve of a new round of government subsidies, in June 2019, China's new energy vehicle sales were 81% year-on-year. The growth rate reached a peak of 152,000 units in the same period in history, but after a month, it experienced a cliff-like decline, and sales fell to only 80,000 units.


Liu Lei is slightly pessimistic about the future of short-term cobalt prices. The production and sales of domestic new energy vehicles accounted for about 50% of the global share in the past two years, and the domestic upstream battery capacity has also exceeded half of the global share. Although 3C batteries based on smartphones have always been the largest downstream market for cobalt raw materials, However, the rapid development of the new energy vehicle industry has become the most core variable affecting the cobalt metal market in the future.


Wang Wentao in his Shanghai office calculated for the reporter: if China will add 100 million 5G smartphones next year, assuming that a mobile phone uses about 10g of cobalt, it means an increase of about 1,000 tons of cobalt.


Liu Lei analyzed that domestic new energy vehicles will not be able to return to the sky in the short term and next year may need to rely on overseas growth. Based on the global 5G infrastructure, the increase brought by 5G mobile phones will be very limited.


Macro impact


The Mb spot price index (refer to this price index for international cobalt spot trade) shows that from January 2, 2019 to December 4, 2019, the average price of cobalt's standard machine was US $ 16.16 per pound. Wang Wentao expects that it will rise to US $ 20 / lb or more in 2020.


This is a relatively conservative estimate, with some bullish to $ 35. Brokers are also generally optimistic about the rebound in cobalt prices. GF Securities non-ferrous metals analyst Ju Guoxian released a view in mid-November that the suspension of Glencore and the start of the 5G replacement wave will promote further rise in cobalt prices.


From the Congo gold mine to China's smelting plant and battery shop, to Tesla's Shanghai super car plant and smartphone shop, to the global end consumer, cobalt element connects the whole world.


Nothing can exist without the environment, and the same is true of small cobalt metals. Wang Wentao is paying close attention to the changes in the macro economy. He judges that now, the macro economic situation, the global and Chinese monetary policy environment, industry production costs, social inventory, and social expectations are all good, and will jointly push cobalt to An exciting future. "At current operating costs, mines are not profitable, and there is little room for the cobalt price to go down. If the money is lost, the producer will take measures to not let the loss continue, just as Glencore can choose to close this in advance. Cobalt ore. On the fundamentals of the industry, overall consumption is still growing, but supply has not increased a lot, and social inventory is not large. "Wang Wentao said.


On the morning of December 8, Wang Wentao opened the Shanghai copper futures price chart. The price chart showed that by December 6, the copper futures price broke the downward trend line. At the same time, nickel futures prices have come out of the "bottom fractal", which means that at the technical analysis level, there are signs of bottoming out.


In the field of metal commodities, copper is considered a leading variety of non-ferrous metals, and the start of the copper market may well mean that the non-ferrous metal plate is driven.


For the commodity market, this is the last month of the year-the traditional "financial month". Enterprises need to fight to sell goods and withdraw funds, which will cause short-term pressure on commodity prices, but Wang Wentao believes that "Hope" will come in the near future.