Optimism on future cobalt market

Asian Metal: Mr. Zhang, thank you very much for accepting our interview. Could you please give us a brief introduction of your company?

Zhang: Currently, our company has two major categories of products --- metal materials and crystalline materials, including nickel cathode, cobalt cathode, battery grade nickel sulfate and cobalt sulfate, cobalt chloride and manganese sulfate. Our company currently has six professional production lines, including 5,000tpy nickel cathode production line, 400tpy cobalt cathode production line, 40,000tpy nickel sulfate production line, 4,000tpy cobalt chloride production line, 5,000tpy cobalt sulfate production line as well as 5,000tpy manganese sulfate production line. In view of the rapid development of the lithium battery market at home and abroad, our company will increase investment in nickel and cobalt-based materials and expand output, striving to become a leading manufacturing enterprise of nickel and cobalt materials worldwide.

Asian Metal: Nickel and cobalt prices picked up sharply in domestic market after the Spring Festival holiday, especially the cobalt prices. What do you think are the key factors affecting cobalt prices?

Zhang: The rapid rise in cobalt prices recently was mainly a result of long-term, medium and short-term factors. As for the long-term factor, the ternary lithium battery is bound to become the major battery used in new energy electric vehicles with increased recognition and policy support and thus the demand for battery of this kind will rise substantially; with regard to the medium factor, a consensus has been reached that global supply of cobalt, especially the primary cobalt, will become insufficient in the future; as for the short-term factor, impacted by the gradual recovery of global economy and US interest rate hike, prices for bulk commodity and non-ferrous metals moved up on the whole, contributing to strong speculative interest in cobalt metal.

Cobalt prices moved up first in overseas market, causing domestic prices to follow suit. The noticeable rise in prices and discount rate for imported raw material resulted in panic sentiment. Consequently, cobalt plants were forced to lift prices to offset potential risks caused by the possibility of rapid price rise. The three factors mentioned above were major causes of the price movement and could affect future market movements. At present, it is reasonable to see prices fluctuate and retreat. However, in the medium and long term, supply shortage is the dominating factor and will further push up cobalt prices. This round of price rise was quite different from that during 2006-2007.

Asian Metal: Your company started to produce cobalt sulfate late last year and also produced cobalt chloride previously. In your opinion, what is the impact of the current supply shortage of raw materials on your company’s production? Is the raw material supply really so tight? Do you have any plan to expand cobalt sulfate output in the future?

Zhang: (1) Our company is also faced with tight supply and soaring production cost caused by increased cobalt prices. Although our stocks and procurement can guarantee normal production at the moment, we are still under huge pressure of replenishment.

(2) From the supply perspective, there is an increase in total resources, but from the point of view of demand, the situation is more complicated. Firstly, cobalt enterprises raise their purchase volumes; secondly, traders also increase buying volumes to build up stocks; thirdly, downstream users and even their clients are active in making procurement in large volumes. As a result, the single relation between cobalt resources and cobalt enterprises splits into one-to-many relationship. The man-made market tension and panic set off chaos in the resource flow and increase risks for market development and enterprises’ operation in the future.

(3) Our company is optimistic about the development of Chinese new energy market and lithium battery material industry. We will increase investment to expand the production capacity of nickel and cobalt salts according to the market development. However, on account of major problems and contradictions at the moment, we still focus on stabilizing supply and efficiently exploring cost-effective cobalt resources.

Asian Metal: Up to now, prices for cobalt salts still show an upward trend, but those for cobalt metal and powder lack the upward momentum. Insiders thought that the speculation has a great influence on cobalt prices. Do you think speculation is the dominating factor affecting domestic cobalt prices?

Zhang: As I said before, the speculation factor exists in the short term and also has a great impact, but is not the main contradiction. The deep-seated problem and contradiction, which lead to the price rise, are the upcoming supply shortage of cobalt resources, especially the primary cobalt resources, and the rising demand for new energy electric vehicles and cathode materials used in lithium batteries. We are more concerned about the changes in the medium and long-term factors and the cycle of improvement. These medium and long-term factors are decisive and the inner driving force behind the cobalt price rise on the global market.

Asian Metal: On account of soaring raw material prices, downstream anode material producers reduce orders gradually to prevent cobalt salt prices from rising continuously. Insiders also believed that cobalt prices will fluctuate in late March. What’s your view?

Zhang: This situation is inevitable and understandable. But I think it's just a passive "conditioned reflex". Cobalt price rise leads to two derivative problems: firstly, the commercial pricing model; secondly, the capital. From the perspective of commercial pricing model, most downstream precursor and anode enterprises usually secure orders and set prices one month, one quarter or even one year in advance. It is hard to execute these orders at original prices when cobalt prices move up rapidly due to the big price gap. From the point of view of the capital, the liquidity problem is very serious when cobalt prices witness an increase of more than 40%. Downstream enterprises have difficulty in recouping and financing with capital pressure and production costs increasing remarkably. On account of the above two factors, it is reasonable for cobalt prices to fluctuate and shrink in a short term. At present, domestic precursor and anode material markets still see fierce competition and we can’t deny the economic value and development prospect of ternary materials used in lithium battery. Enterprises, which cope with challenges actively and collaborate with the downstream and upstream with competiveness in production cost and high adapting ability, will stand out from the rest. We are looking forward to seeing these enterprises.

Asian Metal: Recently, market prices for nickel sulfate also rebounded, but nickel prices still hovered around RMB90,000/t. What do you think are the main causes for the price rise of nickel sulfate? Is there still room for nickel sulfate prices to go up further?

Zhang: The pricing mechanism for nickel cathode and nickel sulfate is completely different. Nickel cathode price is mainly set according to the following three factors: first, the supply and demand situation, especially the nickel demand from stainless steel mills; second, the impact of alternatives, especially the circulation status on the nickel ore and ferronickel ore markets; third, the game situation on the futures market. Domestic consumers use around 1 million metal tons of nickel products with about 900,000 metal tons consumed in stainless steel sector, about 450,000 metal tons of nickel cathode and no more than 50,000 metal tons of nickel sulfate. Therefore, nickel sulfate prices are unable to affect nickel cathode prices, but nickel cathode prices can affect nickel sulfate prices when raw material prices and alterative intermediates are taken into consideration. For example, some downstream plants bought nickel cathodes and nickel briquettes recently to produce nickel sulfate solution to replace nickel sulfate crystal. At present, the nickel sulfate price is a true reflection of market supply and demand. On the one hand, market supply of imported nickel intermediate products is tight this year with a relatively sharp rise in prices, leading to higher production cost for nickel sulfate enterprises. On the other hand, ternary precursor plants see increasing demand for nickel sulfate as a result of the product structure optimization. The output of NCM622, NCM811 and NCA increase remarkably. Furthermore, the reusable nickel scrap resources shrink substantially as the government strengthens environmental protection. In view of the market circulation situation, deals sealed by traders who hold a small amount of stocks only occupy a small proportion of all transactions, while those concluded by producers with end users still make up a large proportion. Judging from these aspects, the driving force behind the nickel sulfate price rise is the demand and production cost. Whether nickel sulfate prices will go up or not depends on the actual changes in supply and demand. However, on account of the current market situation, nickel sulfate prices are expected to rise steadily. Regardless of the human factors, nickel sulfate prices lack motivation to fluctuate sharply.

Asian metal: Your company commenced the construction of nickel sulfate production line with an annual capacity of 40,000t last year, and how is the project going? Can the project come on stream this year?

Zhang: We completed equipment installation in late March and plans to debug full system and commence trail production during April. We strive to run at full capacity in June.

Asian Metal: Asian Metal learned that there has been a large increase in the production capacity of ternary material this year. As cobalt prices went up too fast during the first quarter, the newly-added capacity hasn’t been released, but the demand for cobalt is bound to increase substantially in the future. With regard to the above situation, does your company start to negotiate with downstream users on cooperation?

Zhang: Currently, downstream users show ambivalence about procurement and generally make purchases on back-to-back basis with a cautious attitude. They won’t sign contracts immediately after making a consensus on the selling prices with their clients. They will make enquiries for nickel and cobalt raw materials from upstream suppliers, if quotations given by those suppliers are in line with their prices, they will sign the contract, if not, they won’t sign the contract. I believe that this trading process requires a certain amount of time and cost, but it is also a method to promote coordination between the upstream and downstream. The rapid rise in cobalt prices should be shouldered by participants in the whole supply and industrial chain. We also hope that precursor enterprises are open with us, otherwise the transaction cost will be too high, which will bring adverse effects on every aspects. Therefore, we are very willing to cooperate with downstream users to do this work, but also hope to deepen cooperation and find a better solution.

Asian metal: Thanks so much for your time and we wish your company a bright future.