The Yangtze River Delta region, a major economic hub centered on Shanghai and a key international gateway to the Asia-Pacific region, has been caught in the center of the epidemic.

Shanghai Port, the world’s largest container port, has remained operational since the city’s mass lockdown started in late March, but the number of ships waiting to be loaded or to discharge cargoes soared in the first half of April due to the backlog and because of a shortage of trucks.

That means containers are in storage yards for longer, which can be a particular problem for refrigerated, or “reefer”, containers transporting perishable goods such as foods or medicines. And those containers are likely to get priority as the ports gradually move to ease congestion.

“Trucking remains limited and the terminals are still congested, while reefer-yard plug capacity remains highly stressed,” Japanese container transportation and shipping company Ocean Network Express told customers in Shanghai in an advisory note on Thursday April 14.

As of April 14, the average dwell time for imported containers surged by 144% to 8.3 days, while that for export containers rose by 20% to 6 days, compared with March 12, according to FourKites, a company that tracks supply chain data from its base in Chicago, United States.

FourKites’ data shows that the volume of goods shipped by sea out of Shanghai dropped by 26% between March 12 and April 4.

One producer of lithium salts that traditionally exports via Shanghai Port, reported delays to its shipments, but said it remained unclear how long those delays would last.

And while China’s Ministry of Transport said on April 21 that container ships are now spending less time in Shanghai Port, many shipping lines have already diverted cargoes to neighboring ports in Jiangsu and Zhejiang provinces to avoid ships getting stuck at Shanghai.

And many businesses, including lithium salts suppliers, have taken the same approach and have shifted goods to other ports in a bid to shorten waiting times.

A second Chinese lithium producer source said its exports of lithium salts to Japan and South Korea were now leaving from Zhangjiagang rather than Shanghai.

But even then, they will still face delays of at least one-week after the port was flooded with goods diverted from Shanghai.

“Shanghai Port is the largest port in China in terms of the availability of vessels, containers, warehouses and staff. With all exports originally scheduled for Shanghai moved elsewhere, those other ports are now [becoming] very congested,” the second lithium producer source said.

Lithium prices

Fastmarkets’ price assessment for lithium hydroxide monohydrate, LiOH.H2O 56.5% LiOH min, battery grade, spot price cif China, Japan & Korea, was $80-83 per kg on Thursday April 21, unchanged from Wednesday.

And Fastmarkets’ price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price cif China, Japan and Korea, was $73-78 per kg, down by $2 per kg from $75-80 per kg a day earlier.

Cobalt updates

Cobalt market participants, meanwhile, reported slower efficiency at Ningbo Port, the world’s fourth largest container port and the key port for imports of cobalt hydroxide.

“Due to the [latest] wave of Covid-19 in Shanghai, more materials [that would ordinarily be] delivered to Shanghai ports, are rushing to Ningbo ports. The efficiency has become slower, but currently [the slowdown has had a] limited impact on cobalt hydroxide because of the stagnant market and weak downstream demand in China,” a buyer said.

While most market participants expected only a limited impact on the cobalt market in the short term, they acknowledge that the pain of delayed shipments could increase if the situation is prolonged, especially once downstream demand starts to recover.

Fastmarkets’ assessment of the cobalt hydroxide payable indicator, min 30% Co, cif China was 87-90% of Fastmarkets’ standard-grade cobalt price (low-end) on Wednesday April 20, widening down by 1% from 88-90% on April 13. There was no assessment April 15 due to the public holiday in the United Kingdom.

Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China, was 113,000-115,000 yuan per tonne on Wednesday April 20, down by 1,000-2,000 yuan per tonne from 115,000-116,000 yuan per tonne on April 15.

Having identified the ongoing shipping problems in the Yangtze River Delta region, some exporters opted to move freight to ports much further away.

Some lithium salts exporters have even transported cargoes to northern China such as Tianjin Port and Qingdao Port, where there are only minor logistics issues in comparison. But declaration procedures in Qingdao and Tianjin are stricter than in Shanghai, which could mean longer waiting times for exports, a third Chinese lithium producer source said.

And transporting cargoes from factories to more distant ports adds to the logistics costs, market participants said.

Metals, including silicon and magnesium, which traditionally depart from southern Chinese ports, have also been faced with similar delays due to inland transportation restrictions and port congestion.

“Currently, it is not very easy to transport the silicon metals. I heard that many truck drivers prefer not to go the ports for fear of being struck in the ports or on the roads,” a silicon trader said.

Both silicon and magnesium are typically exported from Huangpu Port in Guangzhou, Fastmarkets understands.

Exports of ammonium paratungstate (APT), meanwhile, which are primarily shipped out from the ports of Guangdong and Xiamen, have remained largely unaffected, market participants told Fastmarkets.

The post China’s Covid-19 logistics hurdles inhibiting minor metals trade flows appeared first on Fastmarkets.

Weakening demand, cautious buying

Producers of manganese ore have identified a softening in demand in response to the latest wave of the coronavirus in China and the government’s strict zero-Covid policy.

Tough containment measures in several regions, including the major steelmaking hub of Tangshan, have impacted flows of raw materials and slowed steelmakers’ operating rates. And this was expected to hamper demand for manganese ore and alloys, one raw component for steelmaking, market participants said.

“The Covid situation means there is uncertainty surrounding underlying steel demand in China,” a manganese ore producer source said.

The weakened sentiment has translated into falling manganese ore prices.

Fastmarkets’ calculation of the price index for manganese ore 37% Mn, cif Tianjin, dropped by $0.10 per dry metric tonne unit (dmtu), or 1.76%, to $5.59 per dmtu on Friday March 25, from $5.69 per dmtu one week prior.

On the same day, Fastmarkets’ calculation of the price index for manganese ore 44% Mn, cif Tianjin, dipped by $0.05 per dmtu, or 0.64%, to $7.80 per dmtu on March 25, from $7.85 per dmtu a week earlier.

Buyers in China have showed a cautious buying attitude.

Smelters in China are struggling to make a profit at current silico-manganese prices, so there is little appetite among them to buy more ore feedstock than required at the moment, Fastmarkets heard.

“Alloy producers are barely making money at current prices and the ore spot market is drying up as a result,” a second manganese ore producer source said. “I expect there will be a gradual softening in prices as producers fight for liquidity – demand in China will determine what happens to prices next.”

Fastmarkets assessed the price of silico-manganese 65% Mn min, max 17% Si, in-whs China, at 8,300-8,600 yuan ($1,306-1,353) per tonne on March 25, down by 200 yuan per tonne from 8,500-8,800 yuan per tonne the previous week.

Participants calculated production costs, based on spot raw materials prices, at roughly 8,300-8,500 yuan per tonne, at the time of writing in late March.

“Producers would volunteer to cut their production should ore prices pick up further while alloys prices remain flat,” a manganese ore trader in northern China said.

The other group of buyers in the market, trading houses, weighed up the risk of building up stocks in the current high-price environment – despite the downward corrections recorded on March 25, the cif 37% and 44% were still at two-year and four-year highs respectively.

“This could be a peak, everyone is taking a cautious step [in regard to] building up stocks,” a second manganese ore trader in eastern China said.

Additionally, there is an expectation that ore prices in the port market will drop amid signs of greater willingness to sell but demand remaining slow over the past two weeks, which has dampened buying appetite for seaborne material further.

Fastmarkets’ calculation of the manganese ore port index, base 37% Mn, range 35-39%, fot Tianjin China, slid for a second week, to 40.40 yuan per dmtu on March 25, down by 0.70 yuan per dmtu, or 1.70%, from 41.10 yuan per dmtu a week earlier.

On the same day, Fastmarkets’ calculation of the manganese ore port index, base 44% Mn, range 42-48%, fot Tianjin China, dropped by 0.80 yuan per dmtu, or 1.31%, to 60.40 yuan per dmtu, from a historic high at 61.20 yuan per dmtu on March 18.

“It is risky to buy seaborne material at current price levels if you expect the portside price will have fallen while the material is in transit,” a manganese market participant said.

“Ore traders in China are not willing to take a position at current prices even for the end of May, and this is creating pressure on ore,” he added.

Tight volumes, relationship selling

Despite the wariness from the buy side, miners have successfully sold their April-shipment material.

Sources attributed this partly to lower volumes being offered from South Africa and some high-grade origins such as Australia and Gabon.

“Demand is low [for low-grade]; the buyers are pessimistic about the outlook for the market. Fortunately, I don’t have huge volumes to offer,” a third manganese ore producer source said.

“Demand for higher-grade material has been a big thing for the past few months but I think there has been lowered offered volumes, which has pushed up the price,” a fourth manganese ore producer source said.

The tight supply has meant consumers have been more accepting of higher prices even if there has been limited demand for large volumes of material. And this factor has particularly boosted purchase appetite among ore consumers looking to eliminate their dependence on spot supply in China.

“The evidently price rises in port markets this year have put producers who only procure from these markets in a tough position; the lesson is to secure some supply from seaborne markets, so they do not have to buy from ports when prices become too high,” a third trader in eastern China said.

On top of this, consumers have accepted current prices levels in order to maintain their long-term relationships with producers rather than out of short-term demand for feedstock, according to some market sources.

“Even if the volumes were reduced, the latest selling was relationship-based so everyone accepted the prices,” the third producer source said.

This has led to concern the market may have run ahead of the fundamentals and demand will not be able to sustain current prices.

“Consumers have been buying in order to maintain relationships so we have been seeing artificial demand and liquidity,” a market participant said. “As a result, I expect prices will come down as the current levels have become unsustainable,” a fourth trader said.

Positive drivers

Those who were more optimistic toward the demand outlook anticipated the Chinese government would seek to maintain economic activity amid the latest Covid-19 outbreak in the country.

“It looks as though the government will act to support the economy and take a more practical approach to Covid,” the first producer source said. “Assuming the government is more positive, then I am sure confidence will pick up again.”

Many participants in China similarly expected the government to ease policies to revive the property sector and carry out higher infrastructure spending, which would boost steel-related demand.

“With mega cities like Shenzhen and Shanghai in the grips of lockdowns, a series of stimulus policy will be necessary to achieve the economic goal this year,” a fifth trader in northern China said.

Earlier in March, China sets its 2022 gross domestic product (GDP) growth target at around 5.5%, a target described by many participants as “not easy to reach” amid the recent Covid-19 outbreak, the Russia-Ukraine conflict and a possible further slowdown in global growth hit by rapidly rising oil prices.

Additionally, the increased appetite for manganese ore from markets outside of China have sent some but limited support to market confidence, participants said.

The Russian invasion of Ukraine has disrupted manganese alloys supply and boosted prices, with Ukraine accounting for around 10-12% of Europe’s annual manganese alloys supplies. As a result, manganese ore producers elsewhere have been incentivized to ramp up their output.

“Demand remains very strong outside of China, I assume this is because smelters are pushing up production up to compensate for the loss of material from Ukraine,” a fifth manganese ore producer source said. “Although, the extent of the latter remains still to be seen.”

Indian ferro-alloy producers have reportedly driven up their output and boosted their offer prices into Europe and Asia. And this has supported demand for ore from India.

“Volumes of ore have been diverted to India from China. Our sales to India have risen and so have other producers’,” the third producer source said. “Demand has also increased for parts of Europe.”

However, despite the rise in demand from markets outside of Europe, China remains the dominant market.

Parcel sizes for consumers in India, for example, tend to be considerably smaller than for China.

“Higher prices in non-China markets have bolstered sentiment especially when miners do not have that much to offer,” a manganese ore buyer in China said. “But buyers in India and Europe can only dilute a certain amount of the supply to China that still remains the largest ore consumer in the market.”

Keep up to date with the latest manganese price news and market movements, visit our dedicated manganese market page.

The post Uncertainty for manganese market participants amid China’s Covid-19 woes appeared first on Fastmarkets.

Fastmarkets’ price assessment for graphite flake 94% C, -100 mesh, fob China, has increased by 38.33% since last November to $830 per tonne on Thursday March 24, the highest in the three-and-a-half years since Fastmarkets began to assess it.

The corresponding price assessment for graphite flake 94% C, -100 mesh, cif Europe, has moved up by 18.79% since last November to $885 per tonne on March 24, also the highest in three-and-a-half years.

“Producers were just coming out of their winter shutdowns and the Chinese holiday [for the lunar new year], and then faced an onslaught of orders that I don’t think they expected would be quite so large – and now [there is] the return of the [Covid-19] virus. All these [factors] combined to overwhelm some of the mines and cause the price increase,” a distributor source said.

“The insecurity [in global trade] caused by [Russia’s] invasion of Ukraine cannot be understated in its effect on this market, as well as many others,” the same source added.

Seasonal factors, anti-pollution efforts

In principle, the traditional winter stoppages in China might not cause supply concerns, given that downstream buyers would restock before the seasonal halt and suppliers sell their inventory during the winter season.

But limitations on power supplies and environmental checks during the second half of last year led to dwindling inventory and less buying appetite among downstream buyers, especially in the refractories sector, according to a second source.

Meanwhile, the widening use of flake fines in anode material over the past two years has sparked increasing concerns about a supply shortage.

“Yield rates of spherical graphite with flake fines from Luobei county could be higher than those from Jixi county,” a third source told Fastmarkets. “So operational stoppages in Luobei matter a lot to the spherical market.”

Spherical graphite is produced using flake fines as feedstock. Flake fines produced in Luobei county are of higher grades and easier to purify further when making spherical graphite, according to industry sources.

Operations in Luobei were halted last December due to the cold weather and environmental regulations, with an uncertain restart schedule.

The best scenario would be that some operations in Luobei would restart in the next month, although the chances of a total recovery could be low due to the absence of environmental qualifications, according to the second source.

“The market might be still affected by shortages given that the operational restarts might not add to the flake supply, since local flake graphite producers tend to save it for their [own] spherical graphite production,” the same source added.

Fastmarkets’ price assessment for graphite spherical 99.95% C, 15 microns, fob China, was $3,500-3,800 on March 24, up by 26.47% from last November.

Logistics

Tight supply and extremely high freight costs from China have led some consumers to switch to African sources of material.

While the global logistical problems that drove up prices in 2021 have eased recently for market participants in Europe, primarily buying from China, there have also been logistical problems on routes from Africa to Europe, according to some market participants.

“There are lots of issues developing in exports from Africa, which has become our biggest supplier,” a Europe-based consumer said. “Lead times have really jumped. It has become a real challenge to ship material [because of] delays – and shippers have been skipping ports.”

Logistical restrictions continued to limit the volumes of exports from several sources.

“Issues of container availability continue to plague the industry when it comes to moving material out of the major graphite-generating countries,” a graphite-sector source said.

Syrah Resources, which operates the Balama project in Mozambique, reported rising demand and sales prices over the fourth quarter of 2021. But its flake graphite output was 13,000 tonnes, down by 48% quarter on quarter, because of the limited availability of containers.

Ukraine war adds to pressure

There have been direct as well as indirect implications for the graphite industry arising from the war in Ukraine.

Production by Zavalievsky Graphite (ZG) in Ukraine has been halted since the Russian invasion on February 24, Volt Resources reported on March 17. Volt bought a 70% controlling interest in ZG in 2021.

Volt had planned to restore production at Zavalievsky to its nameplate capacity of 30,000 tonnes per year in 2022, Volt managing director Trevor Matthews told Fastmarkets last year.

Zavalievsky would like to restart activity from mid-April, a company representative told Fastmarkets, but this will depend on the situation in the country.

Other market participants in Europe reported that import volumes from Russian graphite producers, such as Ural Graphite, would probably fall.

“Because it has a good customer base in Russia, there would only be a problem for Ural Graphite if demand for its material within Russia falls, or its exports are halted,” a consumer in Europe said. “There will certainly be an effect, which will mean less material offered into an industry with increasing demand.”

The presence of Ural Graphite is limited in some parts of Europe, however, according to the same source.

“The effect [of the Russia-Ukraine war] on output might be around 20,000-30,000 tonnes. There could be a demand shift from Russia/Ukraine to Africa, with consumers reluctant to buy from related regions,” the second source told Fastmarkets.

Covid-19 outbreak

Furthermore, industry participants expressed concern about China’s current Covid-19 outbreak, which might interrupt operations and land transport.

Earlier this month, Laixi county in Qingdao city had a resurgence in the number of Covid-19 cases, affecting spherical graphite operations and land transport in the region.

While local Covid-19-related controls were easing with falling case numbers in Laixi county, the resurgence of Covid-19 in Liaoning province was adding to the interruptions to land transport for the graphite trade, given that Yingkou and Dalian, both in Liaoning, are major export outlets for graphite from Heilongjiang province, according to sources.

“Operations in Yingkou have been suspended… for about ten days so far. It’s difficult to ship any material out at the moment,” another graphite sector source said.

China reported 1,301 new locally transmitted Covid-19 cases on March 24, according to the country’s National Health Commission.

Demand amid availability issues

Concern about limited availability of material has had its own effect on demand, with consumers seeking to secure material, according to sources.

“Supply-side issues have caused a ripple effect outside of China, with people scrambling to fill their supply pipelines,” another source said.

Meanwhile, while the international markets gradually recover from the effects of Covid-19, demand for flake graphite was also increasing, another source said, especially in the new energy sector.

The post Natural flake graphite market still affected by supply chain issues appeared first on Fastmarkets.

“Sentiment is definitely down in response to the rise in Covid cases in Tangshan,” a producer source said.

Tangshan, China’s top steelmaking city, was locked down last Tuesday to contain growing Covid-19 infections. Local steel production has been affected, with producers struggling to have their raw materials delivered.

Similarly, steelmakers in southern China including those in Jiangsu province have had to lower their production due to the impact of Covid-19, participants told Fastmarkets.

The hampered downstream production weakened market sentiment for manganese ore and alloys, with some participants expecting the lower demand to lead to falling prices for lower-grade material in the coming weeks.

“There will be big price falls when producers have to offer their material again,” a trader said

“I expect we will see a gradual softening in prices as producers fight for liquidity,” a second producer source of lower-grade material said. “Demand in China will determine what happens next.”

Transport costs and currency movements may support the falling market in forthcoming weeks, according to a market participant.

“Transnet [South Africa’s logistics provider] is a mess so everyone is having their rail slots cut,” the second producer source said. “And trucking costs are already exorbitant.”

South Africa’s truckers face competition for trucking space from the chrome ore and coal markets prior to a jump in diesel costs, which is expected to be implemented in April.

“The market is really quiet and will remain so until we have the April tenders,” a third producer source said. “I think if you had to sell, there would be appetite at around $5.63 per dmtu.”

There was limited trading activity for both low- and high- grades of manganese ore over the week with many market participants awaiting clear direction.

Fastmarkets’ calculation of the price index for manganese ore 44% Mn, cif Tianjin was $7.80 per dmtu on Friday, a drop of $0.05 per dmtu, or 0.64%, from $7.85 per dmtu a week earlier.

Some participants were relatively more positive in terms of the high-grade manganese ore market, citing supply tightness and strong demand from non-China markets.

“Unless miners could improve their production and ship more cargoes to China, the supply and demand imbalance might well intensify in the near term,” a second trader said.

Fastmarkets assessed manganese ore inventories at the main Chinese ports of Tianjin and Qinzhou at 4.82-4.88 million tonnes on Monday March 28, down by 1.42% from 4.85-4.99 million tonnes the previous week.

Port markets correct downwards

Weakness has started to emerge in port markets, with prices for both low- and high-grade manganese ore correcting downward amid thin liquidity.

Fastmarkets’ calculation of the manganese ore port index, base 37% Mn, range 35-39%, fot Tianjin China slid for a second week to 40.40 yuan ($6.34) per dmtu, down by 0.70 yuan per dmtu, or 1.70%, from 41.10 yuan per dmtu the previous week.

Fastmarkets’ calculation of the manganese ore port index, base 44% Mn, range 42-48%, fot Tianjin China moved down by 0.80 yuan per dmtu, or 1.31%, to 60.40 yuan per dmtu, from a historic high at 61.20 yuan per dmtu on March 18.

The downward correction came after suppliers were incentivized to sell their material by the continual price rises in the past several weeks.

The enhanced willingness to sell has weighed on prices, while buyers slowed down their buying ahead of steelmakers’ announcement of the April-delivery silico-manganese purchase price.

It was broadly anticipated that steelmakers would offer an increase to purchase material given the rising production costs brought by elevated manganese ore prices. But participants cast concerns over their demand for feedstock concerning the current production impacts.

Fastmarkets’ weekly assessment of silico-manganese 65% Mn min, max 17% Si, in-whs China was 8,300-8,600 yuan per tonne on Friday, down by 200 yuan per tonne, or 2.31%, from 8,500-8,800 yuan per tonne a week earlier.

Keep up to date with the latest manganese price news and market movements, visit our dedicated manganese market insights page.

The post Chinese manganese ore markets retreat with sentiment dented by Covid-19 lockdowns appeared first on Fastmarkets.

Cobalt sulfate sellers in China succeeded in concluding business at higher levels this week on the back of downstream demand. Sentiment strengthened further on rising production costs driven by rising upstream raw materials costs.

“Downstream buyers booked large volumes of cobalt sulfate ahead of China’s Lunar New Year, and restocking continues this week as some buyers are fearing further increases, considering higher production costs,” a producer told Fastmarkets.

“Some small-sized producers have basically no availability for cobalt sulfate, and other bigger producers insist on higher prices above 110,000 yuan per tonne,” a buyer said. “I heard there are even offers at 115,000 yuan per tonne for cobalt sulfate, but I currently haven’t heard real deals at such a high level.”

Some market participants were still cautious, opting to keep a watchful attitude on the market. But others said they think the short-term market will keep strengthening, given that the upstream cobalt hydroxide tension has not yet fully released.

Raw materials supply tight, shipment delays not significantly eased

Cobalt hydroxide, which is mined and produced in the Democratic Republic of Congo (DRC) and often transported to and shipped out of South Africa, has continued to face slow land delivery, container supply issues and delayed shipments, all of which have tightened the raw material supply.

Fastmarkets’ cobalt hydroxide payable indicator, min 30% Co, cif China was at 88-90% against the standard-grade cobalt metal price (low end) on Wednesday February 16, unchanged since December 8, 2021. It lingered around this high level throughout most of 2021.

The continuous rally in the benchmark metal price has also affected China’s cobalt sulfate market, prompting sellers to keep increasing offers.

Fastmarkets’ price assessment for cobalt standard grade, in-whs Rotterdam was $34.75-35.10 per lb on Wednesday February 17, up by $0.05 per lb from $34.70-35.10 per lb a day earlier. The price has also risen to its highest level since August 2018, when prices stood at similar levels at $34.75-36.00 per Ib.

Under normal conditions, land delivery by truck from DRC to the Durban port in South Africa usually took less than 20 days, market sources told Fastmarkets. But now deliveries are taking 30 days or more. A scarcity of containers and delayed shipments have made the whole process even longer, they said.

“I don’t think the logistics issues from South Africa to China will ease in the first quarter or even the first half of 2022,” a cobalt hydroxide supplier said.

Moreover, some suppliers who were previously able to use general cargo through some shipping companies to deliver cobalt hydroxide have met with declarations problems when entering China during the Lunar New Year period. Some cargoes were being flagged for delivering dangerous materials and were required to book their cargoes as such.

Cobalt hydroxide belongs to category 9 in the International Maritime Dangerous Goods (IMDG) code, which categorizes it as a dangerous material for sea transportation, sources said.

“We heard that a batch of cobalt hydroxide met with declarations problems as some shipping companies, which could deliver it in general cargo before, were required to use dangerous material cargo from now on,” a second supplier said. “This will cause further tension on shipments as dangerous material cargos are very hard to book, and fees are much higher compared with general ones.”

Some market participants said this is not likely to have a major impact, given that there are suppliers who already deliver cobalt hydroxide as a dangerous material during sea transportation.

Others, however, said this will likely put pressure on an already tense shipping situation.

Keep up with what’s happening in the cobalt market throughout 2022, visit our dedicated cobalt market page.

The post Has improved demand caused China’s cobalt sulfate price to hit a three-year high? appeared first on Fastmarkets.

Tianjin started city-wide mass Covid-19 testing on Sunday after local cases of the Omicron variant were detected in the area.

Testing the nearly 14 million citizens of the city led to delays and some suspended operations at the Port of Tianjin, which is the largest port in northern China and deals with a wide variety of commodity imports and exports.

The impact on metal markets from this dramatic development is still coming into focus, but market participants are keeping a close eye on whether more stringent Covid-19 measures may be implemented in the key port city over the coming weeks.

Container transport halted

From January 9, de-vanning and delivery for container cargoes at Port of Tianjin have both been suspended, sources said.

While bulk cargoes can still flow in and out of the port at the time of writing, bulk shipping has also been slowed down by inefficiencies caused by a lack of manpower and truck shortages, participants added.

All port staff are required to take a Covid-19 test, and the resumption of normal operations depends on testing results, which will take at least 48 hours, market participants told Fastmarkets.

“We have seen some impact on container trading, but no impact on bulk vessels right now. All transportation in land for containers from the port has stopped,” a Southern China-based steel importer said on Monday.

“But we still don’t know if the situation will get worse and we don’t know how long it will last,” he added.

Higher freight costs

The Port of Tianjin hosts the majority of the country’s chrome ore and manganese ore imports, with current stock levels for chrome and manganese ore estimated at around 1.55-1.72 million tonnes and 3.82-3.95 million tonnes respectively. These account for approximately 60% and 70% of total domestic chrome ore and manganese ore stock, according to market participants.

With concerns that the Covid-19 situation in the city could lead to extended restrictions on transport, ore users are eager to have their cargoes delivered.

But there has been a shortage of available trucks because drivers have to present a negative result from a nucleic acid Covid-19 test take within 48 hours, while many drivers have tried to avoid driving to Tianjin ahead of the approaching of the Lunar New Year beginning on January 31.

These two factors combined have pushed up transport costs.

For single route from the Port of Tianjin to Inner Mongolia, delivery costs have risen by around 20 yuan per tonne to 130-140 yuan ($20-22) per tonne, according to market participants. One supplier of fused alumina in Henan said that land transport costs have increased by 35-45 yuan per tonne in the past couple of days.

Suppliers of fused alumina and bauxite in Shanxi and Henan, as well as some areas of Shandong who ship out their material mostly via the Port of Tianjin to overseas countries, expressed concern for their export business.

“Costs to Tianjin port has increased and it’s getting more difficult to find drivers willing to ship cargoes to Tianjin.” a producer of fused alumina in Shandong said.

“The situation is unclear now. Everything has been on halt at the port for mass testing. People are waiting for the mass testing result in the following two days. Shipment could be affected if there were many positive infections,” a trader of bauxite in China said.

“Tianjin port is the major export port for magnesium. Given that nucleic acid testing is conducted throughout the city, trucks from other regions cannot enter the city. Trucks that are halfway to Tianjin have to wait with cargoes,” a magnesium trader said.

A second magnesium trader told Fastmarkets that all they could do is to wait for the testing results of Tianjin and the anti-epidemic measures thereafter, and then make their arrangements accordingly.

Some sources said magnesium that has already been stored at Tianjin Port warehouses could be sold at higher prices to overseas consumers who are in an urgent need of the materials.

Fastmarkets’ weekly price assessment for magnesium, 99.9% Mg min, fob China main ports was $8,300-8,500 per tonne Friday January 7, up by $200-300 per tonne (3.1%) from $8,000-8,300 per tonne a week earlier.

Outlook

Market participants agreed that the outlook was very unclear regarding the shipping situation out of Tianjin for the coming weeks and it will depend heavily on controlling the spread of Covid-19 in the city.

“It remained uncertain what the local government might do should more cases emerge. The worst case scenario would be a total lockdown, including logistics in general which will also impact port operations,” a Shanghai-based iron ore trader said.

“Currently, the impact on pricing from the Omicron variant emerging in Tianjin has dampened the earlier bullish sentiment in the iron ore market. [We] will probably have to keep a close eye on this to see if [the] provincial government will further increase restrictions,” a Xiamen-based analyst said.

“The impact will depend on if more new Covid-19 cases will be tested, and Tianjin is closer to Beijing, and with the approaching of 2022 Beijing Winter Olympic Games, more stricter measures are likely to be taken,” a northern China based copper scrap trader said.

(The 10th paragraph had erroneously stated chrome ore and manganese ore stock levels at the Port of Tianjin being 2.27-2.44 million tonnes and 5.11-5.27 million tonnes respectively when this report was first published. These were in fact stock levels for all major Chinese ports, and have been corrected to 1.55-1.72 million tonnes and 3.82-3.95 million tonnes respectively.)

The post How mass Covid-19 testing in China is slowing down logistics – a case study appeared first on Fastmarkets.

The market was already shifting from a hub-based structure to a more decentralized market of markets, driven by underlying conditions. On top of that is the combined impact of economic, environmental, governmental and other forces that are creating new levels of volatility, opacity and risk in the agriculture market.

The magnitude of change means prior methods of managing risk and monitoring the market have become obsolete. There’s now a premium on independent market and price intelligence that enables participants to adapt to a changing environment.

The immediate challenge is not the long-term dynamics, where modest growth in cropland is offset by continued gains in crop yields. A growing population and an expected increase in calorie intake per person combined with increasing demand for biofuels to support sustainable transportation will result in growing pressure on the agriculture market to feed mouths and machines, even with yield growth.

The immediate challenge is the short-term dynamics that affect the market now and decrease the ability for traders to rely on outmoded models or methods to understand, or price, the market.

5 key forces affecting the market today

1. Bumpy Covid-19 recovery

Broader economic changes are taking place as nations seek to overcome the impacts of Covid-19. The combined effect of monetary policy and supply chain issues has increased inflationary pressures (5.3% food inflation in the US: Oct 20 to Oct 21). Transport and logistics bottlenecks are complicating delivery and causing material loss of produce that is creating a 5x increase in container costs. Inflationary pressures are also cascading to farmers who are seeing increased fertilizer costs driven by elevated input prices – creating margin pressure and influencing planting decisions. Monetary policy is changing in part to address inflation – the cost of money will increase across the globe and suppress agriculture prices in 2022. The result is that macro economics are having a sizable and specific impact on market volatility.

2. Russia’s uncertain tax regime

Evolving and unstable tax policy in Russia, along with broader changes in government policies, can significantly impact price and compel market participants to look elsewhere for trade.

3. China’s slowing growth rate

China’s economy, affected by the combined impact of significant debt, a possible real-estate bubble, and slowing growth, may significantly impact agriculture supply and demand.

4. Extreme weather

Severe and unseasonal weather is affecting yields and transport, from critically low rivers in Argentina, heavy rains in China and Germany, fires in Greece and the US, hurricanes, cyclones, and severe cold that are predictably causing unpredictability.

The last few seasons are awash with examples; the 2018/19 season when US rains truncated corn’s growing season and flooded logistics and fields washed out production. Quality issues arose across portions of the US and actively drove shifts in trade flows. Or 2020, when South America’s La Nina trashed Argentina’s Up River hub, but the nation still delivered near-record export and production levels. Finally, in the Black Sea, where prolonged dry conditions last year blunted sunflower crop production and fed into a wider surge on oilseed markets.

5. Sustainable transport

While biofuel-powered cars will see moderate growth (5.4% of road transport in 2025), we will see hyper-growth from other transportation modes, as illustrated by the soaring demand for sustainable aviation fuel.

Uncertainties abound

Any one of these factors can affect the market. But all of them – at the same time – are buffeting the agriculture market and creating a higher level of uncertainty and risk for planners and traders.

The reality is that this is not a blip and we will not collectively return to some prior normal. The underlying shift to a more decentralized market combined with distinct factors such as an economic policy to recover from Covid-19 and address inflation, extreme weather, and governmental policies are driving new and elevated levels of volatility and opacity into the agriculture market.

Old models to gain insights and understand price dynamics are no longer fit for purpose and can create a competitive risk to traders that rely on the prior way of working. More to the point, competitive advantage will go to those able to capitalize on market and price signals that give a persistent, reliable view of where the market is and is going.

The post A changing agriculture landscape appeared first on Fastmarkets.

According to the International Energy Agency, mineral demand for use in EVs and battery storage will grow at least 30 times to 2040 to meet climate goals.

Can supply keep up? Recent market scenarios have painted a picture of dire shortages starting in 2025.

We don’t believe this is a story of looming, acute shortages – yet. Yes, rapidly growing demand will test the market’s ability to expand supply and reduce lead times. But we believe the market will ultimately respond.

So much hinges on the next two to three years, in which the market will be flush with opinions and forecasts, and market participants will be challenged to separate signal from noise. In this report, we look at what’s driving demand, where much-needed additional supply might come from, and what market signals to keep an eye on.

EVs fuel lithium demand

The EV market is the primary driver of lithium demand. We expect EV sales to experience a compound annual growth rate of 40% per year through 2025, when EV penetration is expected to reach 15%.

Automakers are pursuing different battery strategies, seeking to differentiate drivetrain performance, while aiming for the $100/KWh threshold. Tesla has announced no-cobalt batteries. VW announced its move towards lithium iron phosphate (LFP) batteries and high-manganese batteries. Hyundai has launched a hydrogen-powered EV.

Regardless of fleet-level or model-level decisions, most batteries will contain 700-800 grams of (lithium carbonate equivalent (LCE) per KWh in the short- to mid-term, and then pull on lithium metal as the market shifts to solid-state batteries in the longer term. Lithium will long continue to be a critical resource to automakers.

That’s why all eyes are on supply.

The many sources of lithium supply

A total of 345,000 tonnes of processed lithium were produced in 2020, dominated by resources from the lithium triangle and Australia.

Production has been disrupted in the past 12-18 months. Covid-19 restrictions in Argentina, and production cut-backs due to low prices in 2019 and 2020 are putting pressure on current production and have slowed the development of projects that would deliver future supply.

Despite the circumstances of 2020, production is expected to grow steadily to more than 1.03 million tonnes in 2025 and 2 million tonnes in 2030.

Ultimately, supply concerns are not a matter of sufficient reserves, but a question of whether the combined effect of investments, improved methods, and commercial and government conviction can ramp up lithium supplies from across the globe to 2 million tonnes by 2030. We think it is feasible, but so much of that equation hinges on planners and investors being able to differentiate signal from noise over the next two to three years.

Reading market and price signals

The underlying market fundamentals for lithium are straightforward: Increasing and sustained demand will strain supply through 2030. This is a story of two parts: Between now and 2025, supplies from current and planned projects are expected to come online to meet demand; and from 2025 to 2030 new supply sources must come online to support demand.

The next two to three years will determine how much new supply will come into the market immediately post-2025. The challenge is that as planners, policymakers and end-users determine their best action, they do so in a market that is opaque and noisy, complicating decision-making. The critical need will be to access and interpret signals from across the market that can give clarity.

Price signals: Spot markets reflect underlying market dynamics

The Chinese domestic market is often the first to respond to changing supply and demand, closely followed by cif prices for China, Japan and South Korea. But with so many prices nested in long-term contracts, there’s a growing disconnect between contracted and spot market prices. Producers tied into long-term contracts risk missing out on the benefits of exposure to rising lithium prices due to EV demand. Shareholders certainly want some exposure to changes in the lithium market, especially given the outlook, and locking in contracts for such long periods dampens potential returns.

Market signals: Separating signal from noise

Any market has context: historical context, local context, and market context. The challenge for market participants is two-fold: to access information from all corners of the globe and, maybe more importantly, to gain context to understand what any one event may mean and if or how to react. It will be critical to go beyond project insights and gain real context as to expected timing and production levels.

Policy signals: The path to a low-carbon future

International, national and local governments have a significant role to play in setting policy that affects how the lithium market evolves, with tight supply of such a strategically important asset increasing the tendency towards resource nationalism. From the impact of Chile’s new constitution to the environmental, social and cultural challenges facing most new projects. It’s critical that players understand policies and their impact to determine if and how to respond.

Hedging signals: The CME and LME lithium contracts

The London Metal Exchange and CME Group’s recently announced futures contracts enable participants to manage the price risk of volatility, reducing the barriers to entry in a fast-growing market.

The road ahead

Fastmarkets expects continuous pressure on supply through 2030 and beyond as demand increases across the globe. Concerns around strategic shortfalls in lithium are understandable, but we believe that sufficient investment is coming into the market, supported by a steady wave of investment in the longer term and pragmatic policy geared toward a low-carbon future, to ultimately unlock vast lithium resources globally.

The next two to three years are critical for the success of the lithium market to support increasing and sustained demand. Current and future market participants need robust and clear signals to make decisions that guide their strategies and the overall evolution of the lithium market.

Gain more insights and explore other markets connected to lithium and battery materials today. Explore our dedicated lithium market page.

The post Why there’s still time to avoid a lithium supply crunch appeared first on Fastmarkets.

The new energy economy is in a paradoxical time. On the one hand, it will result in booming demand and supply shortages, and on the other, the current market is fraught with supply surpluses and low prices that have not yet found their floors.

This paradox has also created a level of skepticism about demand forecasts. Current oversupply is driven from a mix of producers and investors rushing into the market in 2016 and 2017 based on demand expectations that did not pan out; lessons that can inform – or over-inform – current investment strategies.

Covid-19 has done little to clarify the situation on the ground. It has driven fossil fuel demand down, further limited any real investment interest in coal and reminded people that clean air is possible and good. It has created a moment in time where an accelerated shift to renewable energy is believable. It has also dampened electric vehicle (EV) demand that was supposed to be a lead indicator of the energy revolution.

Paradox aside, the new energy economy is inevitable and transformative: The mitigation of climate change, creation of economic wealth, replacement of a massive fossil-fuel infrastructure and a change in the way we live and breathe. The new energy economy requires investment to precede obvious demand signals while it takes time to bring new mines and capacity online, so even the best investment strategy will be informed by early but incomplete signals.

This report explores this critical moment in time when the market, impacted by Covid-19 and the resultant recession, is heading for an inflection point – when signals will come from different parts of the market: Some real, some PR and some just noise.

Therefore, the goal is neither exuberance nor skepticism, but to provide a pragmatic view of the next two years to give you context on how to make sense of market and price signals.

The current reality

Optimism for the long-term future of the electrification market grew with the disruptive success of Tesla and price spikes in 2015. From 2015-17, forecasts argued for exponential growth and government subsidies de-risked investments, which led to new and expanded production coming online. It was, in hindsight, well-meaning exuberance. It also resulted in oversupply and downward pressure on prices that heightened when China reduced new energy vehicle (NEV) subsidies in June 2019. The paradox is that the same materials that were expected to fuel and benefit from the new energy economy continue to face downward pricing pressure.

The trailing 24 months show a steady decline in prices. Lithium surpluses over the past 12 months alone have caused prices to drop by 41% for lithium carbonate and by 32% for lithium hydroxide monohydrate.

The low prices and weakened demand have put the brakes on new supply, alongside cutbacks of existing supply – meaning the market is beginning to rebalance while excess inventory gets used up. View our current lithium prices here.

Cobalt remains volatile. Cobalt fell from near 10-year highs in April 2018 to pre-Covid lows in July 2019; prices are slightly above those lows, at $14 per lb. It has been a rocky road: Cobalt hydroxide prices rose in May due to supply disruptions caused by a lockdown in South Africa aimed at containing the spread of the Covid-19 virus, but prices took a hit in early June when interest in spot buying thinned. They have remained under pressure during the third quarter of 2020 due to weak downstream demand.

The near-term future for cobalt is also mixed: While cobalt has clearer demand, it has the counter-pressure of companies seeking low- or no-cobalt batteries to avoid the relatively high costs of cobalt and the brand issues associated with child labor in select artisanal mines. We expect prices to remain volatile amid real supply-demand issues and broader concerns about the concentration of cobalt in the Democratic Republic of the Congo (DRC).

While most nickel is used for stainless steel (only 5% of nickel goes into EVs) and lithium iron phosphate (LFP) batteries are gaining share, nickel remains a priority material for batteries while companies explore new chemistries. Even though stainless steel demand has been steady, there has been some volatility over the past couple of years: Nickel prices rose in October 2019 amid concerns about supply stemming from an Indonesian ore ban, but took a hit as Tesla decided to use LFP batteries in its Model 3 in China. (View current LME nickel prices.)

A composite view – what does it all mean

Market prices underscore the likely skepticism about the timing and magnitude of the new energy revolution. Two challenges arise that confront conservative investment strategies: Since it takes five years to bring capacity online, supply will have to anticipate demand – even when signals are not obvious. Waiting for clear and obvious signals could mean market participants or investors lose the ability to gain a strategic stake in an inevitable energy revolution.

Major forces of change

The question is not if the market will turn, but when and how fast.

Market and investment scenarios are processing all sorts of signals, from the economic reopening to strategic moves that current or would-be competitors make, to technological breakthroughs that transfer pressure from one material supply to another.

We have identified 8 major forces that, individually or together, will influence the shape and pace of the market over the next two years.

1. Preparing for resource competition

Despite the skepticism, market participants are already putting in place strategies to gain early market advantage and hedge against likely supply shortages. These strategies give a sense of market dynamics and can provide a blueprint for future investments and actions.

Expand recycling to grow supply: Recycling – akin to the scrap market – lessens the pressure on supply, can create environmental benefits and creates new revenue opportunities. As more batteries come to the end of their useful life, companies like Umicore and Neometals are building recycling capabilities to prepare for high-growth demand and the need for recycled materials.

New lithium mining and extraction methods: Lithium is expected to be core to most battery configurations. Even against the backdrop of falling prices, companies are exploring new extraction techniques to improve yield from 30% to 70% and some governments are considering urban mining to grow demand and enable localized supply chains. This is creating further near-term separation of supply and demand; but expect companies to continue to press for supply as it takes time to put capacity online once demand takes off.

Extend upstream into the supply chain: Automakers, in a limited fashion today, are buying into lithium operations to ensure they get financed against the backdrop of declining prices. Even though cobalt prices are relatively flat through 2021, automakers are also getting directly involved in cobalt procurement rather than letting the battery companies do it for them, ensuring they have direct leverage on the supply chain.

Put in place off-take contracts: A key strategy centers on a level of cooperation: Off-take contracts that help overcome the uncertainty in the current climate. For example, cobalt buyers are locking in four to five-year contracts to ensure their allocation from miners. Alternatively, buyers benefit from assured supply while producers ensure liquidity while demand finds it footing.

In October 2020 during our first virtual lithium event we will hear directly from producers, evaluate latest technologies and analyze the outlook for these markets with recognized industry leaders.

2. Changing chemistry

Companies are already seeking to get in front of pending tightening supply. Innovation in battery chemistry is expected: Whether to have an environmentally and socially clean supply chain, drive costs below $100 per kilowatt hour (kWh), increase EV range, de-risk the supply chain or simply out-innovate the market.

There are common threads such as shifting to low- or no-cobalt batteries. We expect companies to move to an 8-1-1 configuration: First reducing the amount of cobalt by moving from NCM 111 (one-part nickel, one-part cobalt, one-part manganese) to NCM 532, then NCM 622 and ultimately to NCM 8-1-1.

There are also alternative pursuits: LFP, sodium ion batteries (using low cobalt or cobalt free) solid-state batteries, graphene-based batteries and even zinc-air batteries. Most are still in the early phase of research and it is not clear which chemistries will win. It places further uncertainty on those building strategies to deliver on or capitalize on the new energy economy, with questions about which materials will become newly critical and which will become less critical.

3. Pent-up energy

Even noting that the overall market is set to go through an inflection point from oversupply to supply concern, three materials stand out due to the stark contrast between current value and expected value. Lithium, nickel and cobalt are all expected to go into hyper-growth and hyper-valuation, but each of them is starting from a declined state.

• Lithium demand is expected to more than triple, to 940,000 tonnes from 300,000 tonnes in the next five years. However, over the past 12 months alone lithium carbonate prices have dropped by 41% and lithium hydroxide monohydrate by 32%.
• Nickel demand from batteries is expected to grow by over 150% in the next five years, to 400,000 tonnes from 150,000 tonnes, but prices have declined 27% since the 2019 highs (they are flat with where they were a year ago).
• Cobalt demand is expected to increase by 55% in the next five years, but prices have declined by 19% from this year’s high and are also flat compared with levels recorded a year ago. 

The pent-up energy is palpable and hyper-valuation favors those able to time the investment, but it all comes down to understanding signals and timing the market.

4. The next infrastructure

The expected proliferation of wind turbines, solar panels and farms, EVs and the litany of Internet of Things (IoT) devices will require a robust, efficient infrastructure – an infrastructure far different from that in place today. For example:

• The new energy grid, driven by decentralized solar, wind and other resources that enable predictable energy capacity independent of whether the wind is blowing or the sun is shining, can be fueled by existing batteries, like lithium-ion batteries (LIB), but the large-scale deployment depends on achieving economics of scale in EVs.
• The growth and extent of EV charging stations will depend on a trade-off between battery weight and the required footprint of charging stations. A country that tends to favor EVs with larger battery packs will require fewer charging stations, while a country that opts for EVs with smaller battery packs will require a more prolific charging station footprint.

Governments have subsidized the new energy economy, and given the need to stimulate economic activity – and jobs – and compete in a global economy, governments will further finance and propel the new energy economy forward. State Grid Corp of China has said it will increase the number of EV charging stations by 10 times in 2020, pledging 2.7 billion yuan ($385.8 million) of investment. The United Kingdom announced a major infrastructure build-out, and the United States’ infrastructure bill likely waits and depends on the upcoming elections. Either way, further investment will speed the development and accelerate growth of the market.

5. Energy in context

The energy markets have been hit hard by recessionary forces driven by the Covid-19 pandemic, nation-state economic competition and growing skepticism about the future of coal. Fossil fuel demand plummeted, creating an oddly inverted market where futures prices went negative. As demand plummeted, citizens awoke to cities and towns with less pollution and smog – some could see mountains for the first time in decades.

Ethanol has been volatile due to three primary causes: Exports have been affected by trade war and protectionist measures from regions such as the European Union, legislation that underpins biofuel policies have been under attack by fossil fuel interests and overall demand has been hit due to Covid-19 and the small but notable increase in EVs.

The inevitability of switching to sustainable energy seemed closer. The challenge is that the infrastructure is not in place to deliver predictable energy independent of weather and technology and not yet available to deliver affordable energy at scale, crossing the important $100 per kWh threshold. When these markers are hit, we expect a more rapid, common-sense substitution of energy resources.

6. Environmental and social concerns go commercial

A central value of EV and green energy is environmental benefit, but the reality is that green energy production is relatively dirty and carries the carbon footprint of shipping and transportation across the global supply chains. Copper, lithium and nickel production require significant energy and are prone to release toxic compounds into the air. On top of that are concerns about sustainable mining. Social concerns surround some artisanal cobalt mines in the DRC due to child labor and inadequate health and safety measures. Finally, producers have indicated significant concern about submarine tilings used for nickel waste, meaning either investment could get pulled back or more expensive waste processing methods might be needed that would reduce already pressured margins.

These issues have existed – and had been broadly tolerated – for a while. But this is beginning to change. Investment strategies such as Blackstone’s ESG brand pressure to address socially responsible products and a general desire to lift environment standards are putting commercial weight behind the goal of cleaning up clean energy. Infinity Lithium has secured funding from the EU to fund the first phase of a pilot lithium mine and plant in Spain to create localized supply chains.

The full impact of these changes are not clear and are not due strictly to environmental concerns. We expect to see changes in terms of where and who mines, and therefore, the structure of the supply chains for the materials fueling the new energy economy.

7. The commercialization of upstream

It has not always been true that there is a direct correlation between those who have strategic resources and those who profit from those resources. Those lessons are increasingly being applied to the new energy economy, with countries like Indonesia, the DRC and Zambia putting in place commercial and tax strategies to keep the resource wealth local.

This is less about protectionist policies; these are more economic development policies. We expect this to suppress margins from global producers while they either pay higher taxes or participate in shared-ownership structures with governments and local industry players. The larger impact is likely the influence on the structure and behavior of critical supply chains, while resource-rich countries seek to build production industries around mining value. For example, Indonesia has turned itself into a nickel player by banning nickel ore exports, and as a result nickel pig iron and stainless steel plants have been built up in Indonesia, along with huge industrial parks such as Morowali.

8. Post-government investment

Governments have played a central role in financing the new energy economy, but commercial investment outside the automotive sector has lagged. That will change once demand takes shape and converts potential to reality.

Oil and gas companies have targeted investments, but nothing to match the size of their balance sheets and their critical need to become energy companies of the future versus fossil fuel cash cows. Technology and industry conglomerates that will build out the technology-heavy energy infrastructure of the future are pushing forward, but still lack the big bang investment.

We expect to see significant investment that will expand and accelerate research and development, and create new players hungry for resources and committed to avoiding unpredictable supply chains.

The next two years

The new energy economy is out there somewhere, but the path from where we are today to the market that is clearly going to take flight is uncertain. The challenge is that the market dynamics are not clean:

• Market players and investors might be wary due to 2016 and 2017 over-exuberance and resultant oversupply and price erosion.
• The Chinese government’s 10-year planning horizon – and clear desire to be a dominant player in the market – sits in stark contrast to commercial annual or quarterly reporting horizons.
• As it takes five years to stand up capacity, investments need to precede clear demand signals – signals that have misled investors in the past.
• Being early is costly; being late can be devastating.

Current and future market participants and investors need to become immersed in the internal – and changing – fundamentals of the market and be aware of price signals in the evolving market. This can mean different tactics for different industries.

Producers

Although the future market fundamentals are promising for producers, the challenges lie in this interim period when producers will be looking at several signals:

• Focusing on price thresholds: The lithium price needs to be +/- $12 per kg and the nickel price around $18,000 per tonne to encourage investment in those markets.
• Focusing on cobalt: Participants in the cobalt market have been focused on a lack of demand, but with Glencore’s Mutanda mine closed for the next two years due to increased royalties levied by the DRC government there are questions over whether it will reopen. In addition, all the talk about moving to a no- or low-cobalt future discourages potential producers from entering this market. Taken together, these two forces could result in a serious shortage in the not too distant future.

Automakers

Most automakers have found themselves at a disadvantage when dealing with battery makers who want to pass off price increases in raw materials, in part because hedging systems do not exist for lithium and cobalt at capacity. Once EV demand picks up and drives prices higher, automakers will need to address cost risk by either absorbing unnecessary costs or passing costs onto consumers in a highly competitive market.

Consumer electronics

Consumer electronics will be caught in the inevitable competition for resources, and any misreading of the market that results in material supply shortages or price increases can create unnecessary and avoidable competitive risks.

Energy and utility

The pressure comes from two fronts, the growth of clean energy and the continued pressure on fossil fuels. Demand for energy storage systems (ESS) is expected to grow by more than five-fold to 75 gigawatt hours (GWh) in 2025 from 14 GWh currently, which will place acute supply and price pressure on a market already reeling from fossil fuel margin pressures. Similarly, mounting negative pressure on fossil fuels will likely force energy companies to take a larger stake in the new energy economy, which is not yet supported by hedging systems that are part and parcel of the fossil fuel market.

Service providers

Those advising, building or operating the systems that will build tomorrow’s products that are dependent on raw materials will be challenged to know the market as well as the clients they serve, especially with design, performance or financials relying on a deep knowledge of the market.

The path forward

The new energy economy – and the specific references to the battery materials that will resource that economy – sits pragmatically between exuberance and skepticism. Exuberance in that any and all forecasts point to an explosion of demand that will both place acute pressure on supply and drive prices up. Skepticism in that this story sounds familiar, and ended in today’s market of oversupply and price depression.

Being early to market has known risks, but being late to market can carry greater consequences. All told, a more pragmatic, informed approach is needed, especially in the next two years when market and price signals will be mixed and strategies to recover from Covid-19 collide with those to invent for tomorrow.

This is ultimately a question of when will inflection truly begin, how fast will it accelerate from there, and what strategies and investments will pay off?  Those answers increasingly will be found in the market and price signals that will shape this market.

The post Resourcing the new energy economy appeared first on Fastmarkets.

In our survey, Fastmarkets received effective responses from a total of 50 market participants, comprising 15 traders, 10 cobalt salts producers, 10 battery precursor/cathode materials producers, seven cobalt metal producers and four battery producers. The remaining responses came from two distributors, a cobalt metal consumer and an automotive producer. Where participants were active in more than one market, they were listed under their main business category.

The survey responses show clear a positive tone toward the cobalt demand outlook, with most participants eyeing steady or stronger demand for cobalt in 2021, compared with 2020, when the wide-scale disruption caused by the Covid-19 pandemic has a detrimental impact on all industrial activities.

In total, looking at six key sectors, survey respondents gave 143 positive answers in terms of demand expectations for 2021 with just 24 negative responses.

Cobalt demand is expected to rise 17% in 2021 from 2020 when downstream appetites return – especially in the industrial sectors – which were largely subdued due to the pandemic, according to William Adams, the head of Fastmarkets’ battery raw materials research team.

“Demand in 2021 will be elevated given the dip in 2020,” Adams said.

EV sector to drive stronger demand

An overwhelming 44 respondents expect demand for cobalt from the EV sector to grow in 2021, with only two anticipating a reduction.

The pandemic slowed the production and sales of EVs due to the suspension of manufacturing activities in the first and second quarters of 2020, although Original Equipment Manufacturers (OEMs) tried to play catch-up in the second half of the year, encouraged by financial incentives and changes to local regulations related to sustainable industries.

And fast-changing public opinion about investing in more environmentally friendly forms of transport will further boost sales of EVs in 2021, market participants told Fastmarkets.

Even considering the impact of the coronavirus, global pure EV (PEV) sales are expected to have grown by 32% in 2020, and sales will rise by 43% year on year in 2021, according to Adams.

But the growth of cobalt demand from nickel-cobalt-manganese (NCM) lithium-ion EV battery manufacturers is being challenged by a resurgence in interest among China’s OEMs in lithium iron phosphate (LFP) batteries.

LFPs generally have a lower energy density than NCMs, resulting in shorter driving ranges in EVs, but their revival is likely to continue through 2021 due to the recent rapid rallies in cobalt and nickel prices.

Fastmarkets’ price assessment for cobalt sulfate 20.5% Co basis, exw China rose to 64,000-66,000 yuan per tonne ($9,874-10,182) on Friday January 15, up by 20.4% from 53,500-54,500 yuan per tonne on December 9, 2020, when the price began to gradually tick upward.

And Fastmarkets’ price assessment for nickel sulfate min 21%, max 22.5%; cobalt 10ppm max, exw China stood at 31,500-32,000 yuan per tonne on January 15, up by 16.5% from 27,000-27,500 yuan per tonne on November 20, 2020, when the price started to rise.

That said, the increasing adoption of EVs globally – particularly in Europe – and OEMs in China making a slower transition to NCM 811 (Ni:Co:Mn: 8:1:1) lithium-ion batteries from NCM 523 and NCM 622 should boost demand for cobalt in 2021, according to market participants.

For the past five years or so, the majority of OEMs in China have focused on developing nickel-rich batteries, namely the NCM 811, which provides the highest driving range among existing NCM batteries and therefore garnered attractive government subsidies. But this usage of nickel-rich batteries has slowed as a result of a technical bottleneck in the form of cost and safety issues and a reduction in EV-related subsidies.

“OEMs prioritize safety more than anything else and there are still some technical uncertainties with nickel-rich batteries regarding the performance in stability and safety,” a battery cathode materials producer said. “As such, OEMs are likely to slow their ambitions in developing nickel-rich batteries in the near term.”

A second battery cathode materials producer said that because the pandemic is still causing lockdowns in Europe and elsewhere around the world, the commercialization of EV models that use nickel-rich batteries has been delayed.

“While greater deployment of LFP batteries has ‘stolen’ some market share from NCMs, we expect the strong growth in demand for EVs in Europe and in China, to fuel demand for NCM and nickel-cobalt-aluminium (NCA) batteries,” Adams said.

“Whereas a few years ago we would have expected NCM 811 to be one of the main batteries in use by now, we think the deployment of NCM 811 has been slower than expected, with more OEMs content with NCM 532 and NCM 622, which will have a positive impact on cobalt,” he added.

Consumption of consumer electronics has developed much more strongly than many people had initially expected in 2020, largely due to the surge in demand for work-from-home (WFH) equipment, which mainly relates to traditional personal computers (PCs), laptops and peripheral equipment.

Global shipments of PCs grew 13.1% year on year in 2020, according to the International Data Corp (IDC).

But some market participants remain skeptical about whether this momentum will be maintained in 2021, citing some of the demand that was due to emerge this year might have been brought forward into 2020 after businesses and educational establishments were forced to equip their staff (and pupils) to work remotely because of the pandemic.

“Unlike smartphones, it takes a longer period of time for consumers to replace their old laptops,” the second battery cathode materials producer said.

“With lithium cobalt oxide (LCO) batteries going into consumer electronics, such as laptops and tablets, the market did well in 2020 because there was a rush to get people equipped to work from home. But that might mean there is relatively less demand in 2021, unless smartphones on the fifth-generation (5G) network fill in the gap,” Adams said.

It is estimated that 5G smartphone shipments will reach close to 19% of the global volume of mobile phones in 2020 and grow to 58% in 2024, according to IDC.

“Since smartphone sales were subdued last year due to economic headwinds amid the pandemic, consumer appetites to change devices due in 2020 might [have been] delayed until 2021,” a battery producer said. “That will add to cobalt demand and offset the potential decline in consumption of PCs.”

Mobile phone sales in China, the largest consumer of the globe of this category, fell by 20.8% year on year in 2020, according to the China Academy of Information and Communications Technology (CAICT).

Mixed opinions on demand outlook from superalloys

After a significant drop in aerospace activity in 2020, when the Covid-19 pandemic limited international air travel, market participants are generally optimistic about a recovery in cobalt demand from the superalloys sector, though some negative aspects were too significant to be downplayed, the survey results show.

Cobalt demand from the superalloys sector will grow stronger in 2021 compared with 2020, according to 26 survey respondents, while 14 expected demand to be unchanged. But the survey of this sector also had the largest negative responses among the six – the remaining 10 respondents were bearish – showing that market participants’ opinions are not all that aligned on how the sector will fare in the coming 12 months.

Sellers with exposure to this market have conflicting outlooks – some reported having supplied stable volumes to those buyers last year, while others have said there had been no interest from superalloys producers in negotiating contracted volumes for 2021 given the overhang of material.

Aerospace was one of the highest-profile casualties from the pandemic after Covid-19 saw international travel shrink and carrier fleets grounded.

But market participants holding positive views pointed out despite airliners canceling orders, the two main aircraft producers – Boeing and Airbus – both had backlogs of several thousand planes all waiting to be produced.

In addition, the global rollout of Covi-19 vaccines will be a boon for the sector, although several market sources said they did not anticipate that this would filter through to an increase in passenger travel until at least the second half of 2021.

Other industrial sectors steady

For other industrial downstream sectors, such as specialty steel, catalyst and magnet manufacturers, the consensus among survey respondents suggests that they would at least generate stable demand in 2021 compared with 2020. However, quite a few market participants were anticipating stronger demand, especially from the magnet sector.

Similar to superalloys, market participants said the rollout of vaccines would boost the recovery of other industrial sectors where cobalt is used. However, the scale of that recovery will depend on how fast the vaccines reach the furthest flung reaches of the planet.

“I would have thought more [of those who responded to the survey] would have seen demand stronger as the rollout of vaccines is likely to see confidence return to the industrial sectors as the year progresses,” Adams said.

Elsewhere in cobalt’s downstream sectors, the catalyst market fared well in 2020 – only experiencing a downtrend in demand for two or three months, according to one catalyst producer.

“For 2021, the catalyst market is very healthy. The more stringent regulations around [emissions] is positive, as it requires more catalysts to be used per the amount of fuel,” the source said.

Adding that the market was currently growing faster than global gross domestic product (GDP) and the demand for catalyst in the internal combustion engine (ICE) vehicle market are yet to be affected by the pick-up in vehicle electrification.

While this is a positive for the cobalt market, the catalyst sector is, ultimately, quite small compared with the volumes other markets require – sitting at around 1,000-1,500 tonnes annually, according to the source.

The magnet sector, too, is a niche part of the market, but because it takes much smaller volumes than either aerospace or EVs, it is therefore less affected by swings in demand.

“Demand looks fair to strong, with what appeared to be a return of some demand in the second half of last year. Whether that is tied to magnets primarily used in the automotive sector – where demand suddenly reappeared late last year – I am not sure, but the sector looks steady,” a trader said.

A second trader pointed out that magnets are required in industrial gas turbines, an area that was seeing good demand.

Overall, despite a turbulent 2020, market insiders have a positive outlook for the cobalt market in 2021.

Keep up with the trends and news from the cobalt market, visit our dedicated cobalt market analysis page.

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