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China is taking advantage of the cobalt price crash to boost its reserves, Bloomberg has reported. China’s National Food and Strategic Reserves Administration plans to buy ~2,000 tons of cobalt, according to people familiar with the matter. Chinese refiners rely heavily on DRC cobalt mines, although Indonesia is quickly emerging as a large producer.
After hitting an all-time high of $81,790/metric ton in April 2022, cobalt prices have declined nearly 60% to $33,140/ metric ton amid lackluster global demand and surging supply from Indonesia, now the world’s new no. 2 producer. Goldman Sachs has forecast softness for battery metals including cobalt, lithium and nickel in the second half of 2023 mainly due to oversupply.
“We expect further downside for cobalt prices in the near term as demand from the EV battery sector wanes while increasing global production keeps inventories healthy. Elsewhere, demand for cobalt in batteries within consumer electronics including laptops and phones will remain similarly grim in light of the global economic slowdown,” market analyst Fitch Solutions said in a recent report.
But it’s not just cobalt markets getting clobbered. The epic commodity bull run that took off three years ago and saw commodity prices hit multi-decade highs has finally collapsed. From oil, gas and wheat to lithium, copper and iron ore, prices of the world’s leading commodities have pulled back sharply across the board.
The Bloomberg Commodities Index (BCOM), the most widely used benchmark for the commodities market tracked by 23 exchange-traded contracts on physical commodities and more than $100 billion in assets, has declined 12% in the year-to-date and shows no signs of reversing course. The index hit a 9-year peak in May 2022 with commodity prices more than doubling in the space of two years. However, BCOM has since then declined nearly 25%, effectively ushering in a commodity bear market.
“The drop in commodity prices seems to reflect the stuttering rebound of China, a looming US recession and supply side destruction in Europe. It’s indeed possible that inflation could turn into temporary disinflation,” Carsten Brzeski, global head of macro at ING, has told Bloomberg.
By Alex Kimani for Oilprice.com
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.