Shrinking aerospace demand to keep pressure on cobalt
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[June 26, 2020] By
LONDON (Reuters) - Cobalt prices are at
10-month lows due to sagging demand from the electric vehicle and
aerospace sectors amid the COVID-19 pandemic and look likely to slide
further as airlines defer maintenance.
Airlines such as Australia's Qantas <QAN.AX>, Qatar Airways and
Singapore Airlines are looking to defer plane deliveries from Airbus <AIR.PA>
and Boeing <BA.N> and this means postponed demand for cobalt and nickel
alloys used in jet turbine blades.
Graphic: Cobalt demand from aerospace,
But this is only part of the story.
"The harsh high temperature and pressure environments of the jet engine
necessitates regular replacement of turbine blades," said CRU analyst
George Heppel. "But planes are grounded, turbine blades aren't being
used and don't need replacing."
Heppel expects cobalt demand for aerospace rotating parts to total 4,442
tonnes this year, a drop of 18% from 2019 and the lowest since 2011.
Overall, he forecasts a 6,300 tonne surplus this year and global
consumption at 131,800 tonnes.
Graphic: Cobalt market balance,
Prices of cobalt metal, at around $30,000 a tonne, are down more than
15% since early February and are the lowest since last August. As
surpluses become more visible lower levels are expected.
Graphic: Cobalt prices,
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A general view shows airplanes on the tarmac at Paris Charles de
Gaulle airport in Roissy-en-France during the outbreak of the
coronavirus disease (COVID-19) in France May 25, 2020.
Roskill analyst Ying Lu said recent price convergence between higher grade
cobalt metal used for alloys and standard grade was a signal of weak demand from
the aerospace sector. She expects a relatively balanced market this year
compared with a 10,000 tonne surplus last year.
"The pandemic has affected demand and supply. Cobalt mined from (Democratic
Republic of) Congo is typically exported for refining through Durban in South
Africa, where there was lockdown (to halt the spread of the new coronavirus),
which created logistical disruptions."
Cobalt from the DRC comes in the form of hydroxide, which is turned into
chemicals for the lithium-ion batteries used to power electric vehicles. Much of
it goes to China, which dominates the supply chain for electric vehicle
Falling sales of electric vehicles in China, including by Tesla <TSLA.O> and BYD
<002594.SZ> <1211.HK> earlier this year and in the second half of last year,
have also weakened cobalt consumption.
However, demand from the electric vehicle sector, which represents 20% of global
demand, is expected to recover at a faster pace than from aerospace due to
government incentives to promote clean air initiatives.
(Reporting by Pratima Desai; Editing by Gareth Jones)
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