I. Trend analysis
According to the monitoring data of business associations, cobalt price surged in mid-July. On August 7, the cobalt market was completely detonated and the price of cobalt soared. On August 7, the price of cobalt rose by 10,000 yuan/ton per day, 4.17% per day, and on August 7, the price of cobalt rose by 245,666.67 yuan/ton. The price of cobalt rose sharply, mainly because of the announcement of the closure of Mutanda Copper and Cobalt Mine by Glencore, which caused panic about the shortage of cobalt ore supply in the market, and the cobalt market rose sharply.
II. Market Analysis
Cause analysis of closure of cobalt ore by Jianengke
Mutanda is a large copper and cobalt mine in Congo. In 2018, Mutanda produced 190,000 tons of copper and 27,300 tons of cobalt, which accounted for 0.9% and 20.8% of the world’s supply, respectively. Mutanda’s cobalt output reached 134,000 tons in the first half of 2019, which was 13.6% year-on-year. What are the reasons for the closure of the cobalt mine by the end of 2019? What impact will it have on the cobalt market?
1. Mutanda oxidized ore is facing depletion. Since 2019, the proportion of sulphide ore supply in the company has gradually increased, and the ore grade has been lowered. The process change will bring new capital expenditure and cost to Canon. Low cobalt prices are not enough to support this cost. In the future, the pressure of cobalt price increases.
2. The tax rate was raised. In June 2018, the new mining law of Congo was implemented, and the cobalt resource tax increased from 2% to 10%. Increased tax rate, disguised increase in the cost of enterprises, cobalt mining enterprises to increase the break-even point, after the market cobalt price low range.
3. Previously, it was predicted that the global cobalt surplus will be about 355,000 tons in 2020, and the cobalt ore supply will be excessive, which will lead to a sharp drop in cobalt prices. The MB cobalt price will fall from the position of the highest 40+US dollars/pound to 12 US dollars/pound, a drop of more than 70%. The cobalt industry will face the problem of over supply in the next 2-3 years if new supply is released on schedule due to the surge in cobalt prices and the surge in global supply. The Mutanda shutdown will reduce the supply by about 28,000 tons. It is estimated that the global surplus will be only about 0.75 million tons by 2020, and the surplus has been greatly reduced. At the same time, taking into account that the reduction in the supply of civilian mining in the Democratic Republic of Congo has exceeded 50%, the risk of cobalt being in short supply or demand will increase significantly in 2020.
In summary, we can find that the main reason for Jianeng Co’s suspension of cobalt mining is the rising cost, but the cobalt price keeps falling, and the cobalt price is far below the break-even point. Glencore shuts down cobalt ore to reduce losses, while reducing global cobalt supply, stimulating cobalt prices. At the same time, we also found that Jianengke has the ability to increase cobalt production at any time, and the KCC project can increase production capacity at any time. With the rise of cobalt price, Jianengke can restart Mutanda Copper-Cobalt Mine at any time, exceeding the break-even point of cobalt ore. After the cobalt price, the market has sufficient momentum to rise, but the risk of catching up is high.
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1. Subsidies have declined and sales of new energy vehicles have declined.
On August 7, BYD released its July sales bulletin for new energy vehicles. Data show that sales of BYD’s new energy vehicles in July 2019 were 16,567, down 11.8% from the same period last year; sales of BYD’s new energy vehicles in July were significantly lower than those in June, 26,571, a sharp drop of 37.7%, a drop of nearly 10,000 vehicles, mainly due to the impact of the expiration of the transitional subsidy policy on June 25, resulting in a sharp decline in sales in July. The impact of the decline in sales of new energy vehicles in July is expected to improve in September. Sales of new energy vehicles are lower than expected, and demand in the cobalt market is lower than expected, which brings risks to the rise of cobalt prices.
2, 5G mobile phones bring growth?
According to the Chinese Quality Certification Center, eight 5G mobile phones have been certified by the 3C China Quality Certification Center. Major manufacturers have also released their own 5G mobile phones. The market is generally bullish on 5G products. Sales are expected to surge and demand for cobalt is expected to surge in the future. But we should also note that Gartner expects global smartphone sales to fall by 2.5% in 2019, the biggest decline so far. By 2020, 5G mobile phones will account for 6% of total mobile phone sales. It is very difficult for 5G products to break out in the short term, and there are still uncertainties about when they will break out and whether sales will meet expectations.
Generally speaking, future demand is generally bullish. It is difficult to determine when and how much it will rise. Future demand in cobalt market is full of uncertainty.
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Bai Jiaxin, a data analyst with business associations, believes that the news of Jianeng Cobalt Mine’s shutdown will inevitably lead to a rise in cobalt prices, and cobalt prices will still rise in the future. However, several risks should be noted: first, whether Jianeng can implement the shutdown as scheduled, and whether other cobalt miners will increase production to make up for the shortage after the shutdown; second, the sale of new energy vehicles; The volume of new energy automobiles in the future declines, and the sales of new energy automobiles in the future are not as good as expected. With the acceleration of cobalt removal from batteries, the demand for new energy automobiles in the future can meet the expectations. When the third and fifth G products will erupt is uncertain and full of uncertainties, we can not expect too high.
Taking into account the risks, we can also see that the main reason for the discontinuation of Jianeng cobalt production is that the cobalt price is lower than the mining cost, the cobalt price is below the break-even point, and the future cobalt price may be maintained at a higher price to ensure the normal production of cobalt ore. The future cobalt price of 200,000 yuan/ton may become history, and the market cobalt price is expected to remain around 300,000 yuan/ton.