I. Trend analysis

 

According to the monitoring data of business associations, cobalt prices have soared recently. From September 6 to September 10, the average price of cobalt has risen by nearly 20,000 yuan in three trading days. As of September 10, the price of cobalt was 291,000 yuan/ton, which was 272,000 yuan/ton higher than the average price on September 5. The price of cobalt rose by 19,000 yuan/ton, or 6.99% in the three trading days. What causes the recent surge in cobalt prices? Can the cobalt market continue to grow?

II. Market Analysis

1. International Cobalt Price Rising Pressure Returns to Domestic

MB Cobalt Price Continuously Rises

As of September 6, MB standard grade cobalt is offered at US$16.8-17.5 per pound, alloy grade cobalt is offered at US$17.05-18.35 per pound, and MB cobalt is converted into RMB over 300,000 yuan per ton. The continuous increase of MB quotation is one of the main reasons for the recent soaring cobalt price. In the earlier period, the domestic cobalt price was too low and the international cobalt price was higher than the domestic cobalt price, which is conducive to the domestic cobalt export, accelerating the reduction of domestic cobalt stock and further leading to the rise of domestic cobalt price.

Cobalt Price Rising in LME Market

 

Since September, the cobalt price in LME market has risen sharply. The international cobalt price is obviously higher than the domestic cobalt price, which is conducive to the export of domestic cobalt and accelerates the de-stocking of domestic cobalt, which is good for the cobalt market.

2. Cost Pressure and Expected Supply Reduction Pressure of Cobalt Mines

According to the cost of cobalt ore, the cost of crude cobalt raw materials in domestic smelters may be 183,000 yuan/ton (excluding tax). The tax cost of electric cobalt products is higher than 260,000 yuan/ton. The high cost of raw materials pushes up the price of domestic electric cobalt. Jianengke KCC production reduction and Muanda shutdown, the active reduction of civilian mining, resulting in the expected reduction of cobalt production, cobalt prices in the future rise is better.

3. Cobalt enterprises in the stock market follow the trend

 

From the reaction of the stock market, we can see that the cold cobalt industry rose and stopped one day, Huayou cobalt industry rose 6.68% one day, and the stock market followed the trend of the spot market. The main reason is that after the cobalt price bottomed in mid-July, the spot cobalt price has continued to rise for nearly two months, which supports the cobalt smelting enterprises in China. Against the background of decreasing stock of cobalt raw materials and decreasing supply of international cobalt ore, cobalt smelting enterprises have a very low willingness to ship at a low price, which objectively promotes the rise of cobalt price.

4. Downstream Demand Expectation

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New Energy Vehicles Keep Rising

According to the data of the Ride Federation, in August 2019, the wholesale sales of new energy passenger cars were 71,000 units, down 15.5% year on year and up 6% year on year. In August, the wholesale growth rate of pure electric passenger cars increased by 0% and 17% year-on-year. From January to August, 714,000 new energy passenger cars were wholesaled, an increase of 41.7% year on year. New energy vehicles still have good performance, but the growth rate has slowed down significantly. In the future, the demand for cobalt for new energy vehicles will still increase, but the growth rate may be difficult to anticipate.

Mobile phone sales are declining

 

According to the data of CITIC, in July 2019, the total shipment volume of domestic mobile phone market was 34.19 million units, down 7.5% from the same period last year; in January-July 2019, the total shipment volume of domestic mobile phone market was 220 million units, down 5.5% from the same period last year. Domestic mobile phone sales declined, not with the advent of 5G, ushered in greater improvement. On the contrary, the imperfection of 5G infrastructure and the single model of 5G mobile phone affected consumers’enthusiasm for switching. It is expected that the 5G switching tide will indeed come in 2020. The demand for cobalt in the mobile phone market in 2019 is not obvious.

3. Prospects for the Future Market

Bai Jiaxin, a data analyst with business associations, believes that the rising cost of cobalt ore has led to a series of changes in the follow-up market. The cobalt price of less than 200,000 yuan/ton in the earlier period has led to the loss of cobalt enterprises. The reduction of production of Glencore and the increase of prices of other cobalt enterprises are all acts of stress to enterprises with low cobalt prices. With the cobalt price approaching the 300,000 yuan mark again, it may be difficult for the cobalt price to continue the miracle of cobalt price. From the cost point of view, 300,000 yuan/ton cobalt price cobalt enterprises have enough profit space, too high cobalt price is bound to suffer unanimous boycott from downstream customers, affecting the rise of cobalt price; from the demand point of view, although the sales of new energy vehicles are still rising substantially, but the growth rate has declined significantly compared with previous years, NEW energy vehicles are the rising belt of cobalt market. The power has slowed down and it is difficult to support the rapid rise of cobalt price. The demand expectation of 5G mobile phone is one of the important supports for the continuation of cobalt price in the future. However, from the current performance of mobile phone market, it is difficult for the mobile phone market to rise significantly in a short period of time. On the contrary, the imperfection of 5G infrastructure and the selection of 5G models are less at this stage. It will reduce consumers’enthusiasm for switching phones. It is expected that the peak of mobile phone switching will come in 2020. The demand of cobalt market has not been better in the near future. In summary, the recent rise in cobalt prices is a comprehensive response to the cumulative transmission of cost pressures and supply expectations. In terms of demand, the future cobalt price has no effective support to sustain the rapid rise of cobalt price. There is still room for future cobalt prices to rise, but the slowdown is inevitable, and the future cobalt market will rise smoothly in a relatively long period of time.

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