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LME Week: Strong cobalt prices lead to mid-point offers

Highlights

Cobalt offers see sellers try to push 'new normal'

Demand for new hedging tools; lithium carbonate, cobalt hydroxide

Power cut affects still unknown

The LME's annual industry event returned over Oct. 11-15 after a fallow year enforced by the coronavirus pandemic, while contract talks began after 10 months of battery raw material commodity prices surging across the board.

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Cobalt offers bullish

Sellers are keen to start selling cobalt hydroxide basis the mid-point of prices, moving off the low-point, which has historically been where contracts and spot sales have been negotiated from.

Three sellers reported making offers basis the mid-point.

"It is a small town, there are only so many shops [selling cobalt hydroxide] and all the offers are bullish," one seller said, adding that: "No contracts had been concluded yet".

Buyers are not keen to move to these aggressive offers just yet, believing that sellers may be looking to capitalize on market tightness and that offers may soften should sellers hold out on signing for the moment. This may lead to a protracted negotiation period.

A rising spot market helped to continue improving sellers mood.

Platts assessed 99.8% Co metal at $26.60-$27.20/lb IW Europe Oct. 19, up 20 cents/lb week on week for spot cargoes aligned to Platts methodology, loading in 15-60 days. This price started the year 60% lower at $15.90/lb when using the mid-point.

Hydroxide hedge

There is appetite for a cobalt hydroxide hedging mechanism. Cobalt metal has been trading on the LME's rival the CME, but this does not allow for the perfect hedge, market participants have reported.

A cobalt hydroxide contract is anticipated to help attract tap interest from Asia, the largest consuming market for cobalt hydroxide.

It would also facilitate a hedging tool for the growing part of the market, given there is no new metal units in the supply pipeline.

Several cobalt hydroxide sellers said it would be "another level to pull" to facilitate trade and they would provide liquidity to the contract.

Chemistries lead to carbonate

The lithium industry has reported an appetite for a carbonate cash-settled futures contract. Lithium-ion-phosphate (LFP) batteries have gained the dominant market share due to advancement in technologies.

LFP batteries can be made smaller due to pack-to-cell technology that allows a greater number of cells, which can hold more energy, enabling greater driving ranges.

Given this development, meaning that lithium carbonate may well become the larger part of the battery market over lithium hydroxide, several brokers reported that the market is inquiring about a tool to hedge lithium carbonate.

Lithium hydroxide contracts are listed on exchanges including the LME, but are currently seeing thin volumes.

Platts assessed lithium carbonate unchanged day on day at $22,000/mt CIF North Asia Oct. 19. This is up $100/mt from Oct. 12, and after starting the year 71% lower at $6,350/mt.

Power cuts

The power cuts in China came as no surprise, according to several market participants.

It could create bottlenecks, given that demand for electric vehicles will not be impacted by the electricity cuts. Raw materials consumption may slow, given the power rationing.

Given the existing overcapacity for cobalt salts production, it is believed some bigger players can pick up the slack should any small companies be taken offline for a short period of time, a cobalt hydroxide producer said.

A second cobalt hydroxide producer said his customers had not yet been notified about any impending power cuts, which had eased some of his concerns about the potential impact.

It is still largely seen as a wait-and-see topic by the cobalt market.

Although, in the lithium market, one major producer has issued a notice that lithium chemical prices will increase 5%-10%, a consumer said.