Monsters of Rock: Cobalt's back in (the) black, but nickel's on a Highway to Hell

Cobalt shows signs of life, posting minor recovery in September
Nickel sulphate prices in China and Asia continue to drop as weaker EV demand growth hurts metal suppliers
Gold miners the standouts in poor day for materials sector

Cobalt’s the sort of metal that can rarely catch a break.

A small but important component of NCM (nickel-cobalt-manganese) lithium-ion batteries, when prices soar it draws ire, prompting calls to substitute the metal with cheaper alternatives.

When prices crater, miners fall out of favour with the market. There’s little response on the supply side to curb price drops either. Cobalt is a by-product of copper and nickel mining, so its supply is heavily price-inelastic.

Then there’s the fact not only that a large chunk of the market comes from the politically tetchy Democratic Republic of Congo (DRC), but also the icky PR image that your iPhone battery contains metal dug out of the ground by child soldiers.

Yikes.

At least on one front it’s looking a little brighter. Having spent months down in the dumps — with trading on the LME grinding to a virtual halt — cobalt is the first commodity which looks to have shaken off the downward trend hitting battery metals amid weakness in Chinese EV demand growth.

According to Benchmark Mineral Intelligence, cobalt sulphate was Back in Black in September, lifting 3.5% with cobalt metal for batteries up 6.3% to US$14.88/lb.

The need to restock inventories in China brought buyers back into the market, with LCO and NCM cathode manufacturers incentivised to start purchasing again, BMI said.

Cobalt is a smaller market than nickel and lithium, meaning there is less material to work through in supply chain stocks.

“While seasonal buying has helped cobalt, it has yet to be significant enough to affect the other cathode materials, which trade in much larger volumes and therefore have greater volumes already working their way through the supply chain,” BMI says.

“As hydroxide recovers from the historic low, market participants expect prices to continue to rise, with offers as high as US$8.50/lb, significantly higher than the highest trades recorded at US$7.80/lb.”

(NB: Hydroxide contains around 20-40% Co, while sulphate is around 20.5% Co, metal is 99.8% pure).

Watch out for the copper run

But there are some headwinds emerging in 2024.

Cobalt supply out of the DRC is expected to lift. That could apply downward pressure on prices given its linkage to copper, meaning cobalt supply growth can be disconnected from market dynamics.

“Finally, CMOC announced it had raised copper guidance for 2024 up to 600,000t for the year, which, if realised, represents an increase of up to 67% on its previous guidance,” BMI says.

“While it is unclear to what extent this will impact the cobalt market, it certainly indicates that, for the time being, we can continue to expect growing cobalt supplies out of the DRC.”

Asian nickel sulphate prices meanwhile dropped 3.8% to US$4725/t, with Chinese prices off 0.8% in September, in a sign battery materials continue to be under pressure from lower demand from cathode producers, which came alongside a 4% drop in average LME prices.

Meanwhile, mixed hydroxide precipitate prices ran up 6.3%, rising from 71.3% to 76% payability against the LME.

That was heavily linked to environmental crackdowns in Indonesia, which is trying to limit the output of low sustainability nickel pig iron from RKEF plants. It meant a run in nickel matte, ferronickel and NPI prices which led to higher demand for MHP from sulphate producers who began to find nickel matte too costly.

Lower lithium prices also saw less recycling activity, leading to higher MHP demand.

“These two occurrences result in a tightened MHP supply, however, this likely on a short-term basis as this supply contraction is not supported by robust demand in downstream market production,” BMI says.

“In the long term, MHP capacity continues to grow in the Southeast Asia region as Gotion, GEM and Huayou announced plans to build HPAL plants in Indonesia.

“Furthermore, the Philippines is looking to recreate Indonesia’s success with miners NAC and Global Ferronickel planning to invest US$1b each on HPAL plants in the country.”

The weakness in nickel could last into 2024 according to the other BMI, a unit of Fitch.

Fitch analyst today knocked down their LME price average for 2023 from US$23,500/t to US$22,000/t as three month prices hit US$18,723/t yesterday, down from around US$30,000/t at the start of the year.

Higher than expected production from Indonesia’s fast moving laterite miners is pushing the market further into surplus, they say.

“We maintain the view that global nickel production will increase significantly in 2023 and into 2024 on the back of a ramp-up in Indonesian and Mainland Chinese refined nickel output, pressuring prices. In 2024, we expect nickel prices to average US$20,600/t, below the 2023 average,” Fitch believes.

“Beyond that, we expect nickel prices to increase, rising to US$23,000/t by 2028 as the market goes into deficit on the back of surging demand for nickel along with the rise in the production of EV batteries.”

And on the markets?

While the ASX 200 stemmed the bleeding with a 0.51% gain, the materials sector was of little assistance, falling to a 0.16% drop as analyst knockdowns on lithium stock ratings and weakness across the big iron ore miners hampered the miners.

Gold stocks were the standouts, with Northern Star Resources (ASX:NST) up almost 5%, Evolution Mining (ASX:EVN) bulking almost 3% and Newcrest (ASX:NCM) confirming plans to pay a US$1.10 per share special dividend if its takeover by Newmont goes through.

Among the small producers, Tietto Minerals (ASX:TIE) was the standout, the owner of the Abujar gold mine in Cote d’Ivoire rising 6.78% as investors cheered a long term production outlook outlining plans to produce 170,000ozpa from 2024 to 2032 at life of mine all in sustaining costs of US$982/oz, generating US$108m ($171m) in post tax free cash annually.

Nestled underneath those numbers was some disappointing news on production in September. The mine produced 10,962oz with an average milled grade of 0.93g/t in September, lower than forecast on weak contractor volumes.

“We are pleased to finalise this updated Life of Mine Plan for our Abujar Gold Mine as we continue to ramp up gold production. The updated LOMP shows AISC of US$982/oz over the life of the mine, and strong average nine-year production of 170,000oz per year at a life of mine head grade of 1.04 grams per tonne gold,” TIE boss Matt Wilcox said.

“Tietto achieved strong cash and bullion generation in the September quarter of A$18M at a significantly lower average head-grade than reserve head-grade.

“This updated LOMP demonstrates just how strongly Abujar can perform over a longer timeframe, which will become apparent as our mining contractor begins to generate stockpiles enabling grade selection for mill feed.”