Financial Services Association, Feb. 24 (Reporter Liang Xiangcai) Cobalt prices have lagged behind in the past four years, showing a rare “flat” trend. To a certain extent, this also reflects the results of the current internal game in the industrial chain.

In an interview with a reporter from the Financial Federation, several industry insiders said that at present, the overall price of cobalt is struggling on the cost side and is already near the bottom of the cycle; at the same time, with the completion of production capacity, the cobalt market will once again return to a reasonable state of relative balance between supply and demand. Although there are still excessive expectations for the cobalt market in the short term in the future, most of the respondents are optimistic about the long-term trend.

At the current historically low level of cobalt prices, the Democratic Republic of the Congo (DRC), the world's number one supplier of cobalt, will no longer “stand idly by” and will evaluate whether it is necessary to implement export quotas or other measures to maintain cobalt prices.

Are there any new export restrictions to the Democratic Republic of the Congo (DRC), where part of production capacity has been exported?

According to Choice data, in the nearly three months since December last year, the price of cobalt (cobalt metal) gradually stabilized after falling to about 220,000 yuan/ton; as of February 22, it was 218,000 yuan/ton, a low of nearly 7 years.

Changjiang Nonferrous Metals Market 1 #钴平均价（数据来源：Choice）

In the process of this round of cobalt price correction, production capacity has already begun to run out. An executive of a listed cobalt company once told reporters that due to the continuous decline in cobalt prices, since the second half of last year, some small local Congolese gold mines have chosen to stop production due to cost pressure.

Furthermore, international mining giant Glencore is lowering its cobalt production target for this year to cope with the weak cobalt market. The mining company said at the beginning of this month that it is expected to produce 35,000 to 40,000 tons of cobalt this year, compared to 41,300 tons in 2023.

Wang Wentao, general manager of Shanghai Qiancobalt Industrial, told the reporter that recently the entire industry chain has basically been struggling near the cost line. The normal situation is that production capacity will gradually be cleared after falling below the cost. Only cobalt companies with sufficient cash flow can better get through the bottom of this cycle.

A person from Hanrui Cobalt (300618.SZ) securities department told reporters consulting as investors that cobalt prices have indeed been at historically low levels recently, and there are currently no plans to cut production.

People related to the Luoyang Molybdenum Industry (603993.SH) told reporters that the essence of competition in the mining industry is price. If cobalt prices continue to fluctuate at a low level, it may cause high-cost cobalt producers to cut back and stop production. It is normal for this kind of market clearance. The company believes that after the market clears, cobalt prices will return to a state of balance between supply and demand.

As the world's largest supplier of cobalt resources, the Democratic Republic of the Congo (DRC) no longer “stands idly by” on the current slump in cobalt prices. A CIFA reporter from various foreign media and a number of people in the industry chain said that at the beginning of this month, Congolese President Kim said that the continued decline in cobalt prices led to a decline in the turnover of local mining companies, reduced related revenue, and threatened employment and the revenue prospects of excess profit taxes. To this end, assess whether it is necessary to implement export quotas or take any other measures to maintain cobalt prices in accordance with the recommendations of the country's Strategic Mineral Markets Supervisory Authority (ARECOMS).

Regarding the above situation, some industry analysts told reporters that it is less likely that Congolese gold will restrict cobalt exports in a short period of time, because its competitor Indonesia will rapidly release cobalt production in the future, and is also highly competitive on the cost side. However, in the future, it is not ruled out to extend downstream of the industrial chain by requiring foreign mining companies to set up local smelters, etc., in order to keep more profits in the country.

The bottom of the continuous return cycle of listed cobalt companies is gradually showing

The fourth quarter of 2022 was the “darkest hour” for listed cobalt companies. As cobalt prices plummeted, net profit also fell sharply, but as the decline slowed down, cobalt companies' ability to “recover” grew longer.

Among the three major listed cobalt companies, Huayou Cobalt (603799.SH)'s performance is relatively small due to the advantages of comprehensive industrial chain integration, changes in raw material prices. Meanwhile, the performance of Tengyuan Cobalt (301219.SZ) and Hanrui Cobalt, which contain a high amount of “cobalt,” is relatively highly correlated with the trend of cobalt prices. As of Q3 2023, the net profit of these two cobalt companies had more than tripled year-on-year.

A relevant person from the Tengyuan Cobalt Industry told reporters that around the beginning of last year, the company had optimized its inventory strategy, controlled safety stocks for about two months, and as cobalt prices stabilized, the disclosed data showed that the company's profitability continued to improve. The company can switch flexibly in the production line of cobalt products, and can make timely adjustments according to market demand in the future.

As an investor, the reporter learned from Hanrui Cobalt Industry that in the process of this round of falling cobalt prices, the company is also cleaning up inventory, and the previous inventory has almost been digested.

According to reports, Luoyang Molybdenum (603993.SH) produced 55,500 tons of cobalt in 2023, surpassing Glencore to become the world's largest cobalt company. The company's cobalt production mainly comes from TFM and KFM's two major copper-cobalt mines for Congolese gold. Company officials said that cobalt metal is produced as companion ore. Due to the high grade and scale of the two mines, the operating costs of the copper-cobalt mine are extremely competitive in the industry.

When the reporter asked about the sales strategy for cobalt products that the market is generally concerned about, people involved in the Luoyang Molybdenum industry responded: The company will make overall considerations based on market conditions and other factors. Furthermore, the company has long-term partnerships with most downstream customers, and the number of sales is locked in long-term contracts signed.

Liu Lei, deputy general manager of the New Energy Division of Shanghai Steel Union, said that from the perspective of cobalt metal, the current price of about 200,000 yuan/ton is not the absolute bottom of the recent stage, and from a cost perspective, the price of cobalt metal still has some profit margin. Therefore, with the emergence of oversupply, the price is still likely to drop further. The absolute bottom price in the future is expected to be around 180,000 yuan/ton.

Regarding current cobalt prices, Wang Yanqing, a senior non-ferrous metals researcher at CITIC Construction Investment Futures, told reporters that as far as major cobalt products are concerned, cobalt sulfate production is already at a loss. The price of cobalt tetroxide is close to the cost line, and the profit margin of electrolytic cobalt has been cut by nearly half compared to the same period in 2023.

Wang Wentao told the reporter that with the exception of electrolytic cobalt in China, all other varieties have basically fallen close to the cost line. Due to the large domestic production capacity of electrolytic cobalt, the market is slightly pessimistic about its expectations, but it is expected that there is also extremely limited room for its decline.

Optimistic about long-term demand

People involved in the Luoyang molybdenum industry told the reporter that in the long run, as the new energy industry continues to flourish in the context of the “dual carbon” transformation, the company is optimistic about the long-term trend of cobalt prices. From an industrial chain perspective, lower cobalt prices and stable supply support the sustainable development of upstream and downstream industries, reduce the cost sensitivity of downstream battery manufacturers, and consolidate the market share of ternary lithium batteries, which is beneficial in the long run.

Wang Wentao told the reporter that although the current excess pressure is high, he is still optimistic about the future long-term trend of the cobalt market as the upstream mining side clears up its less competitive production capacity and expectations for downstream consumption.

Looking ahead, Wang Yanqing said that in the short term, it is expected that the excess logic in the cobalt market will not change, and prices will mainly fluctuate at low levels. Under weak demand-side performance, the momentum for rising cobalt prices may be insufficient, but long-term demand after cycle rotation is still considerable.

Liu Lei, on the other hand, believes that with regard to short-term domestic cobalt prices, they are mainly weak and stable, and there is still some room for decline in the future. Looking at medium- to long-term trends, it is expected that cobalt prices will be at a low consolidation stage in the second quarter of 2024-2025. Occasional disturbances may occur, and prices will fluctuate and rise.

It should be noted that in the next two years or so, the global supply of cobalt raw materials will grow faster than the growth rate of terminal demand. According to Mysteel statistics, the global supply of cobalt raw materials in 2023 was 220,000 tons, up 16.6% year on year. The supply of cobalt raw materials is expected to reach 240,000 to 250,000 tons in 2024, which is expected to increase by 9.1% year on year. However, from the consumer side, global cobalt consumption will be 199,000 tons in 2023, and the excess amount will reach 21,000 tons. In 2024, global consumption will reach about 210,000 tons, and will still maintain an excess of about 20,000 to 30,000 tons.

According to reports, the battery sector is the biggest demand side for cobalt. Among them, power batteries used as ternary precursors and 3C lithium batteries, mainly lithium cobalate, account for about 80% of total cobalt consumption.