NFSRA stockpiling has usually generated positive sentiment in the market, but the sources were unsure if it could give much of a lift to the moribund Chinese sulfate and hydroxide markets, which have failed to regain their footing despite the lifting of stringent COVID-19 lockdowns in Shanghai.

Weak demand from the 3C computers, communications, and consumer electronics sector and the battery industry's attempts to reduce reliance on cobalt in nickel-manganese-cobalt batteries are likely to continue depressing cobalt metal prices, the sources said.

“It is difficult to get official confirmation, and we still don’t know for sure [NFSA buying will take place],” a Chinese trader said. “But this metal buying will provide little support for hydroxide or sulfate prices. Ultimately, it still comes down to battery demand.”

Platts assessed 99.8% cobalt metal at $24.5/lb IW Rotterdam Aug. 10, down 38% from a 2022-high near the end of April, according to data.

NFS RA's role in stockpiling

The NFSRA handles the purchase and storage of strategic material reserves, as well as implementing certain procedures as stipulated by the National Development and Reform Commission, the country’s top economic planner.

Some proponents speculate that the NFSRA primarily buys commodities simply to prop up market prices. The Chinese state reserves authority is said to have purchased slightly above 2,000 mt of cobalt metal in Q4 2020. Unconfirmed reports indicated a further 3000 mt metal accumulation in early 2021.

“The NFSRA always buys at the bottom … they did that with nickel, copper and a lot of other products,” said a US-based trader. “If you follow NFSRA buying on the metals, the market has always reacted up.”

Earlier Aug. 9, Chinese sources cited gains of up to Yuan 50,000/mt in domestic cobalt metal prices, although the prices have eased through the week as market sentiment cooled.

Metal traders are somewhat bullish on a potential NFSRA stockpiling.

“It’s a positive thing, I don’t see how anyone could disagree,” a US metal trader said. “It is simple, it is a national stock there. The Chinese economy is guarding itself against sanctions or trade disruption that could accompany political or military maneuvers.”

Sources in the cobalt sector said exports of cobalt hydroxide may become saleable even at higher levels of cobalt metal prices, even if the end-market demand may remain unchanged.

Bearish mid-term hydroxide outlook in China

Further downstream, the Chinese market was more uncertain about the impact of stockpiling on hydroxide and sulfate markets.

Orders for cobalt hydroxide from the battery business have been weak and prices are at a ~20-month low, whilst sources in the market are not seeing convincing signs for a recovery in the Chinese market, which takes 74% of global refining capacity.

“We are three months down the road now, in that China’s not there [in the market], so we'll have to see how that plays out,” adding a cobalt salts producer. “It is a crystal ball situation and difficult to have a good prediction; people in the market keep saying China will be back next month.

If the NFSRA stockpiles could dramatically alter metal market fundamentals, a Chinese refiner said. But a lack of stockpiling will likely apply downward pressure on metal prices in the coming weeks. “It’s too early to know for certain how large the impact will be, I think we just have to wait for visibility,” the refiner added.

Chinese traders were broadly bearish with the mid-term hydroxide prices as the fundamentals of supply-demand do not justify a price increase. This would mean at current levels, hydroxide prices would need to be under $13/lb for refiners so as not to take a loss, the sources said.

Historically, the cobalt hydroxide market was priced as a percentage payable against an underlying price of cobalt metal. But Chinese market participants have come to question how widely this pricing mechanism is still reflective, especially as China’s COVID-19 lockdowns have revealed widening divergence between the metal and downstream cobalt product prices.

The fixed price assessment for cobalt hydroxide has been in a steady downtrend since late April.

assessed 30% Co cobalt hydroxide at $13.10/lb CIF China Aug. 11, down from an all-time high of $34.10/lb assessed April 25. The assessment is for spot cargoes in line with the methodology, loading 15-60 days forward.

Inquiries for cobalt sulfate have been low as consumers are heading toward cheaper recycled sulfate tradable around Yuan 51,000/mt, Aug. 10, another Chinese refiner said.

On Aug. 11 assessed battery-grade 20.5% Co cobalt sulfate at Yuan 55,000 ($8,169)/mt DDP China, according to data. Prices had fallen in the week ending Aug. 10 but rose slightly after discussions about stockpiling.