Andy Home: Export ban on cobalt from Congo is not enough to eliminate the glut

The Democratic Republic of Congo has suspended cobalt exports for four months, a sign of how even the largest producer in the world is feeling the effects of historically low prices.

This news has given cobalt a boost and its impact is already spreading through the supply chain. One Congolese operator Eurasian Resources Group, (ERG), declared force majeure for deliveries of the metal used in electric vehicle batteries.

Will it be sufficient to solve the structural problems that a market oversupplied?

History does not support this.

The Congolese Government appears to have understood that a temporary export ban is not enough and that something more dramatic may be required.

Feeling the Pain

Cobalt prices were at a multi-year low of $10 per lb before the Congo made a surprise decision to stop all exports.

On most commodity markets, such low prices would have already triggered a significant supply response.

The impact on cobalt is limited. The artisanal cobalt production in Congo has declined and there have been delays in new projects, such as MMG Kinsevere's Kinsevere Cobalt Plant, which is also located in the Congo.

According to the U.S. Geological Survey, global supply increased from 238,000 metric tonnes in 2023 to 290,000.0 tons in 2024.

Cobalt is a metal that comes from nickel and copper by-products. It has no self-correcting mechanism or floor price.

The production has continued to boom due to the surge in nickel production in Indonesia, which is the second-largest cobalt producer in the world, and the rising copper output within the Congo.

China's CMOC group reported a 55% increase in its Congo operations copper production from last year. With the copper, 60,000 additional tons of cobalt were also produced. This flooded a market already oversupplied.

According to Benchmark Minerals, global cobalt stocks have exploded to the equivalent amount of 233 days of consumption.

The Flood: Stemming the FLOOD

The news of the suspension of exports has caused the cobalt price to rise. In just a week, the CME's most active contract rose to $15 per lb.

A ban on exports, however, is only a temporary panacea. It will likely lead to an accumulation of stocks of cobalt hydroxide intermediate products in the Congo.

In 2022-2023 the Congo government suspended the exports of copper and cobalt to CMOC due to a long-running tax dispute.

CMOC did not stop production during the nearly year-long suspension of exports, but simply accumulated more inventory on its production sites.

China's copper exports to the Congo showed this impact. Imports of metal from the Congo increased sharply after a significant slowdown in the first half of 2023.

The same result is likely to be achieved by a four-month suspension in cobalt exports - an initial boost followed by a renewed weakness of prices as exports recover.

The Congo government must find another solution. The Congo government needs another solution.

As long as CMOC, Glencore, and other companies continue to produce copper, as they will due to the high price of that metal, they will also continue generating cobalt by-product units.

The Congo might even introduce production quotas. However, this would have a double impact on the country's taxes.

FADE ELECTRIC DREAMS

Another problem for the Congo is that global cobalt glut does not only refer to oversupply. The weaker than expected demand in the electric vehicle (EV), battery sector is also a factor.

Cobalt consumption isn't growing along with the EV market because automakers are switching to battery chemistry that uses less or no cobalt.

The metal is notorious for its price volatility, and they are afraid of damaging their reputation by importing it from Congo. This country's artisanal industry is known for its poor working conditions and child labor.

The recent sharp increase in cobalt prices may be good for the Congo government, but on the long term it will only reinforce the belief that cobalt was not the metal to bet upon in the future energy transition.

WANT TO BUY SOME COPALT?

There are still other buyers for the Congo's cobalt production.

Cobalt, in its form as super-alloys, is also used by the aerospace and aviation industries.

The United States and European Union have not hidden their desire to decrease China's dominance in the cobalt chain. This grip is a result of China's investments in Congo's manufacturing sector.

Chinese companies such as CMOC produce so much cobalt that the West struggles to develop its own supply chain.

The Congo government is already considering a deal similar to the one struck with Ukraine for minerals, as it fights the M23 rebels who are expanding their control in the eastern province of Kivu.

The best way to find a market for the excess production is by negotiating a long-term deal with the West.

Export bans of four months will not work.

(source: Reuters)