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China’s battery industry has seized on a
glut in the global cobalt market to push through a change in the way the
commodity is priced.
A rapid expansion of cobalt mining in
Democratic Republic of Congo and Indonesia has output racing ahead of demand,
dragging down global prices. It’s also prompted a push by squeezed Chinese
refineries to win changes in how cobalt is bought and sold.
Top producers CMOC Group and Eurasian
Resources Group have agreed to sell more of their material against the local
Chinese price of cobalt sulphate, the chemical form used in batteries,
according to people familiar with the matter. That’s a shift from pricing
against refined cobalt metal that has been typical for decades.
The switch is only partial so far, and has
been resisted by one major supplier, Glencore, said the people, asking not to
be identified discussing a private matter. But the pricing change is one among
many upheavals triggered by the boom-to-bust slump across the battery materials
sector in the past year.
“Refiners would prefer sulphate pricing,
and the glut of material reaching the market means that they are in the driving
seat,” said Thomas Matthews, battery metals analyst at CRU Group in London
said. Pricing against the chemical will be the norm at least for the coming
five years, he said.
Cobalt prices slumped about 30% last year,
and the price of cobalt sulphate in China sank to its lowest since at least
2010 in December, according to Shanghai Metals Market. Consultancy Rystad
Energy forecasts one of the biggest-ever worldwide surpluses in 2024.
OFF EXCHANGE
Like many niche commodities, cobalt supply
contracts are often fixed against spot prices assessed by third-party agencies.
Miners typically sell hydroxide for sulphate production at a percentage of the
global metal price published by Fastmarkets, a UK company.
But the Chinese refineries are now
referencing cobalt sulphate prices from domestic agency Shanghai Metals
Markets, taking advantage of a period of plentiful supply to seek prices which,
they say, better reflect an expanding and China-centric battery supply chain.
Rystad says EV batteries will account for
41% of cobalt demand by 2030, up from 28% last year. That comes despite a shift
to battery chemistries that don’t require cobalt.
Chinese industries have long pushed for
greater pricing power across a range of commodities from iron ore to crude oil
and now battery materials. A lithium futures contract was launched last year,
while Russia’s largest nickel miner was said to sell some of its metal in yuan
at prices set in Shanghai.
CMOC, which is Chinese, plus Glencore and
ERG are the world’s top three cobalt miners, and together account for more than
half of global production, according to Rystad.
Glencore is resisting sulphate pricing in
negotiations because it has less control over the end-product market in China,
and a link to the chemical pricing could amplify its exposure to a downturn in
prices or demand, the people familiar with the matter said.
In response to Bloomberg’s query, a CMOC
representative said the company is referencing various formulas in its sales
contracts, including cobalt metal and payables, hydroxide quotes and cobalt
salt products. ERG didn’t respond to requests for comment, while Glencore
declined to comment.
COLLAPSE
Lithium and nickel also plunged along with
cobalt in 2023 as supply expanded, China’s booming EV industry dialed down its
breakneck pace of growth. The price slump has wreaked havoc, with new projects
stalling, inventories ballooning and investor interest on the wane.
Oversupply is a particular problem for
cobalt because it emerges almost entirely as a by-product of making copper or
nickel. Indonesia’s booming nickel mines have already transformed the Southeast
Asian nation into the world’s second-biggest cobalt producer after DRC. In the
African nation, a major new source of cobalt is CMOC’s Kisanfu copper project.
So despite price volatility and a growing
surplus, there’s unlikely to be any major mine shutdowns or targeted efforts to
rein in cobalt production, according to Rystad Energy’s analyst Susan Zou.
“As long as the price of copper stays at
decent levels, there will still be appetite for mining activity,” Zou added.
“Gains in copper are still likely to offset some losses in cobalt.”