Battery metals rally as supply cuts loom
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
A risk-off tone across global markets weighed on sentiment across the commodities complex. Signs of more supply outages failed to support prices in the metals sector.?
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Market Commentary
Base metals declined as geopolitical tensions triggered a risk-off tone across markets. US President Donald Trump told a key government committee to curb Chinese spending on tech, energy and other strategic US sectors. Earlier in the session, metals rallied after inventory data showed rising requests for metal stored in LME warehouses in Asia. In addition, the sector also found some support from supply side issues. Glencore announced that it was halting production at its copper refinery in the Philippines. Processing fees for smelters have sunk to record lows amid struggles at copper mining operations around the world.
Battery metals rallied amid more supply outages. Cobalt rallied more than 3% on the LME after the Democratic Republic of Congo announced that it is halting all exports of cobalt for four months to stop the prolonged slide in prices. The DRC is the world’s largest producer of the metal, contributing around 70% of the global supply. In 2023 it produced 170kt. Benchmark prices for standard-grade cobalt have fallen to USD9.5/lb, their lowest levels in a century in real terms. This follows reports of the imminent collapse of Indonesian nickel producer, PT Gunbuster Nickel Industry. It has slashed production at the country’s biggest nickel smelter and is said to be delaying payments to local suppliers and unable to secure nickel ore.
Gold retreated from record highs as investors took profits following the recent rally. The precious metal has risen more than 12% this year as demand for haven assets has risen sharply amid the uncertain economic and political backdrop. The sell-off was sparked by the latest data showing US consumer confidence fell this month by the most since August 2021. This may ultimately see support return for gold, with weak economic data likely to spur the Fed to cut rates.
Crude oil slumped amid concerns that President Donald Trump’s policies are weighing on economic growth and energy demand. The subdued US consumer comes at a time of broader weakness in the US economy. Last week saw the services PMI and University of Michigan consumer sentiment fall, raising concerns about weak growth. The US is also moving to further decouple economic ties with China. Trump’s threat to place more tariffs on China, including energy products, could also disrupt trade. This has helped ease concerns of tighter supplies. Earlier this week, the US imposed more curbs on brokers, vessels and individuals that are said to be linked to illicit shipments of Iranian crude oil. These issues are likely to drive discussions with the OPEC+ alliance about whether it should delay planned production hikes. The planned hikes of around 100kb/d per month are scheduled to start in April. Aside from the uncertain geopolitical backdrop, signs of weaker demand could see them delay those hikes for the fourth time.
Global natural gas prices followed oil lower, with European and North Asian benchmarks coming under heavy selling. Signs of weaker demand added to the bearish sentiment. In Asia, Chinese LNG imports are 13% below the five-year average in recent weeks. Above average temperatures in Europe are also easing pressure on inventories.?
Chart of the Day
Cobalt prices have been on a sharp decline over the past two years as concerns over a surge in supply weighed on sentiment. However, demand appears to be relatively strong, with inventories continuing to fall. The move by the DRC to halt exports could be the trigger to reverse this decline and push prices higher.
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