CRU Group has warned of the risk that producers in the well-supplied cobalt sulfate market could switch to cobalt metal and flood that market if the sulfate price goes too low.

CRU senior consultant Toby Green told the Technology and Low Emission Minerals Conference in Perth, Australia, on Nov. 14 that it had to create a scenario of US$50,000 per tonne for its long-term cobalt metal price forecast as banks thought its previous US$75,000 per tonne base case was "too phenomenal."

Green told the conference that fears of a cobalt sulfate shortage in 2017 led to feverish activity to the point where "we have an overshoot in getting what was required in the short-term."

Trangie Johnston, managing director of Broken Hill Prospecting Ltd. which is developing the Thackaringa cobalt project in New South Wales, Australia, told S&P Global Market Intelligence that his company picked up on the price differential between the cobalt metal and sulfate price about six months ago.

"You're going to see a settling of different qualities and market pricing, and what exactly is battery-grade cobalt sulfate also has some definition to pin down," he said, adding that it would be up to the end users to clarify their specifications as the market evolves.

Green said that although the metal's demand has grown at about 3.8% a year, the additions to the market in recent years have been outweighed by the reductions, notably Katanga Mining Ltd., though hope remains as S&P Global Market Intelligence research recently revealed that cobalt exploration budgets have tripled this year from 2017 levels.

He said the cobalt metal price is still relatively high — despite having fallen nearly 40% this year having hit 10-year peaks in March — because for companies creating the super alloys that go into airplanes, prosthetics and power turbines, "there's not enough metal going around."

Katanga had to halt cobalt hydroxide sales from its 75%-owned Kamoto copper-cobalt mine after uranium contamination was detected.

CRU's London-based Senior Analyst George Heppel said the lack of traceable cobalt and lack of conversion capacity means the metal price will remain strong out to 2022, as "all the additional cobalt metal we're seeing coming onto the market at the moment is all from China."

Sulfate differential widening

Cobalt sulfate, of particular interest to the Australian market, is a completely different story.

"There doesn't seem to be any shortage at all in the market, with plenty of intermediate and conversion capacity. For that reason we can expect the discount for cobalt sulfate to widen quite significantly over the forecast period as it will begin to operate under its own supply-demand dynamics," Heppel told S&P Global Market Intelligence.

"So instead of being linked to the metal price, it will very much float on its own."

While the premium for cobalt sulfate rose to US$8/lb over the metal price in the first half of 2017, Heppel said the speed at which the Chinese market has expanded refinery capacity in the last two years has been "nothing short of immense."

He said Zhejiang Huayou Cobalt Co. Ltd is now producing about 30,000 tonnes of cobalt sulfate and will become the world's biggest producer later this year, while the likes of Jinchuan Group International Resources Co. Ltd. and other major refineries in China are now pumping out significant amounts of cobalt sulfate.

Some are even vertically integrating down to making precursor, and in some cases even have plans to make cathodes.

"For that reason, we can expect the sulfate price to drop quite significantly, because the sulfate market operates under very different supply and demand dynamics than the metal market," Heppel said.

"If the cobalt sulfate price does fall quite dramatically then a lot of those producers could switch to making cobalt metal, which would flood the market with metal, which would bring that price down over the next couple of years. We could see people trying to reduce the cobalt metal price to make that a less attractive option."