State purchases drive up cobalt metal prices in China

(This Nov. 18 story corrects spelling of name in paragraph 4)

By Pratima Desai and Min Zhang

LONDON/BEIJING(Reuters) - Purchases for state stockpiles are driving up prices of cobalt metal in China, creating a hefty premium over the rest of the world and encouraging local producers to add large amounts of production capacity.

Cobalt prices in China above $18 per lb <SMM-REM-RCB> are up 15% since talk of buying by the National Food and Strategic Reserves Administration started in July.

Graphic: China cobalt prices vs rest of the world - https://fingfx.thomsonreuters.com/gfx/ce/jbyvremrkpe/Cobalt%20prices.PNG

Elsewhere prices at around $15.75 per lb are under pressure, mainly because COVID has shrunk demand from the aerospace industry, which uses cobalt metal for jet turbine blades.

"The first round of (China) stockpiling is still in progress...with a total amount of 2,000 tonnes estimated to be bought," said Arena Yang, analyst at CRU in Shanghai, adding that the process was expected to be completed by April.

"Rumours are circulating about a second round."

China's national reserves administration in response to requests for comment said: "We are not aware of the situation you described".

A source at Jinchuan Group said China would buy about 2,000 tonnes of cobalt metal and that Jinchuan would supply around a third of that. Jinchuan did not respond to emailed requests for comment.

CRU estimates China's cobalt metal capacity is close to 20,000 tonnes, up from around 13,000 tonnes last year. It expects global cobalt production at 138,000 tonnes this year, of which more than 35,000 tonnes will be metal.

Traders say China has already stockpiled between 5,000 and 7,000 tonnes of cobalt metal.

"China bought when prices crashed to $10 about five years ago," a trader said, adding that supplies of cobalt hydroxide used to make chemicals for electric vehicle batteries were tight.

This is partly because Glencore's <GLEN.L> Mutanda mine in the Democratic Republic of Congo has been shut since November last year and COVID-related bottlenecks in Durban through which DRC minerals are typically shipped.

"Fears over tightening hydroxide supply in 2021 have kept prices/payables at relatively high levels," said Caspar Rawles, analyst at Benchmark Mineral Intelligence (BMI).

Payables, a reference to the percentage of the cobalt metal price used to price hydroxide, have climbed to around 80% from 60% last December, according to BMI.

Graphic: Cobalt hydroxide payables - https://fingfx.thomsonreuters.com/gfx/ce/oakvexeaapr/Cobalt%20hydroxide%20payables.PNG

(Reporting by Pratima Desai and Min Zhang; additional reporting by Tom Daly; editing by Barbara Lewis)