Huayou Cobalt Profit Slides on Sulphur Shock as Tax Rate Surges
The Chinese battery materials giant's Q2 earnings fell sharply as geopolitical disruption spiked input costs, while new global tax rules and minority stakes eroded returns to shareholders.
Sulphur Price Shock Weighs on Q2 Performance
Zhejiang Huayou Cobalt reported a sharp sequential decline in second-quarter profitability, pressured by a dramatic surge in sulphur costs that squeezed margins at its hydrometallurgical nickel operations. Executive Jun Wang told analysts that "geopolitical conflict caused supply disruptions in sulphur-producing regions, with sulphur prices soaring and significantly pushing up MHP production costs, putting pressure on hydrometallurgical smelting operations" (earnings call, 2026-08-20).
The RMB 11 billion (~$1.5B) market cap cobalt and battery materials producer is responding by accelerating sulphur self-sufficiency initiatives, including gypsum-to-acid and pyrite-to-acid projects currently under construction in Indonesia, according to company representatives.
Tax Rate Jumps on Global Minimum Rules
Investors raised concerns over a significant increase in the company's effective tax rate, which materially impacted reported earnings. Wang explained that Huayou falls within the scope of the OECD's Pillar Two global anti-base erosion rules, requiring additional tax provisions that lifted the overall rate. "In addition, profits from high-tax regions such as Zimbabwe have begun to be released, which has also pushed up the overall income tax rate," he added (earnings call, 2026-08-20).
The tax headwinds come as minority shareholders captured an outsized share of profits. Minority interest reached 46% of net income in the first half, up sharply from prior periods, driven primarily by strong performance at Indonesian joint ventures and the Bamo Technology cathode materials subsidiary.
Cathode Materials Business Gains Traction
Despite macro headwinds, Huayou's controlled subsidiary Bamo Technology reported robust growth in cathode material shipments. The unit's ultra-high-nickel Ni94 and Ni95 products "passed certification for 46-series large cylindrical batteries from leading customers and achieved mass production first," with ultra-high-nickel products maintaining a lead in emerging applications including condensed-state batteries, humanoid robots, and eVTOL aircraft (earnings call, 2026-08-20).
Executive Hongliang Chen defended the company's focus on ternary (NCM/NCA) materials amid questions about market share erosion to LFP chemistries, citing ICC data showing global ternary material output of 572,300 tonnes in H1 2026, up 23.85% year-on-year (earnings call, 2026-08-20).
Cash Flow and Capital Deployment Concerns
Operating cash flow of RMB 2.148 billion represented just 0.42 times attributable net profit of RMB 3.507 billion, as accounts receivable surged 61.07% from year-end. Wang acknowledged investor concerns, stating the company "will actively take effective measures to reduce accounts receivable and inventory, and improve operating cash flow" (earnings call, 2026-08-20).
Construction in progress stood at RMB 22.345 billion at mid-year, up 71.87% from December, primarily for the Pomalaa hydrometallurgical project in Indonesia expected to commission by year-end. The company also disclosed it is progressing with the acquisition of Ghana's Ewoyaa lithium project, announced earlier in 2026.
Huayou's RMB 600-1,000 million share buyback program, announced July 21, had not commenced as of month-end. Executive Rui Li told investors to "please pay attention to subsequent progress announcements" regarding timing (earnings call, 2026-08-20).
This article was generated by MarginX from the earnings call on 2026-08-20. It is not investment advice.