Chinese cobalt powder producer Hanrui Cobalt disclosed plans for new capacity in a recent press release on the use of funds previously raised through equity financing. According to the document, the company commissioned a cobalt hydroxide plant in Kolwezi, DRC in early 2017 with a designed capacity of 5ktpy cobalt; however, in the past 33 months, the accumulated returns generated from the project were much lower than expected and Hanrui Cobalt has now made the decision to upgrade the hydroxide plant to build new capacity for copper cathode (20ktpy) and cobalt cathode (5ktpy). Operated by its subsidiary in the DRC, Hanrui Metal (Congo), the new project requires a total capital investment of RMB15.14Bn (US$215M) and has a commissioning target of mid-2020. By mid-November 2019, 30% of total required capital investment for the project was already in place.
Hanrui Cobalt cited plunging profits from hydroxide sales this year as the main reason for refocusing on metal production in the DRC. In the first three quarters of 2019, Hanrui sold 2.8kt of cobalt-in-hydroxide, 0.3kt higher than in 2018. Despite the volume increase, profits dropped significantly and were 500% lower year-on-year.
The dramatic fall in cobalt metal price, improved hydroxide availability, and underperformance of cobalt chemical prices this year are likely to be some of the key factors underpinning lower-than-expected hydroxide profitability. The hydroxide payable fell from 70% of the MB cobalt metal price in late August after the Mutanda news, to 60-63% at the time of writing.
Apart from the premium sales price cobalt metal may offer in the short-term, the decision to add new metal production could also potentially provide Hanrui with more integration and diversification, hence boosting the company’s profitability in the longer term.
With a designed capacity of 4.5ktpy of cobalt fine powder (3ktpy newly added in Anhui in late August) and an estimated production level of 1.5-2.0ktpy, Hanrui is one of the top cobalt powder producers globally. A new operational cobalt cathode plant in the DRC will enable Hanrui to better utilise Congolese feedstock for output of added-value products. Its product mix is also expanding with a chemical and NCM cathode precursor plant being built in Ganzhou.
Hanrui is not the only cobalt refiner in China looking to bring more metal capacity on-line going forward. Anticipating the oversupply of cobalt chemicals (such as sulphate and tetroxide) to continue in the short-term, major producers including Huayou, GEM and Tengyuan all have plans to ramp up cathode production for 2020 and 2021. In the next two years, Roskill expects a total metal capacity of roughly 10ktpy to be added in China. In a market of less than 50ktpy, this could potentially change the market balance and trading patterns of metal, adding to the possibility of price swings in an already volatile market.
Roskill’s Cobalt: Outlook to 2029 report was published in August 2019. Click here to download the brochure and sample pages for the report, or to access further information.