ANDY HOME | DRC's export ban not enough to clear cobalt glut

The Democratic Republic of the Congo's (DRC) four-month suspension of cobalt exports is a sign that even the world's largest producer is feeling the pain of historically low prices.

The news has given the cobalt market a fillip and the impact is already rippling through the supply chain with one DRC operator, Eurasian Resources Group, declaring force majeure on deliveries of the electric vehicle battery metal.

But will it be enough to address the underlying problems of a structurally over-supplied market? History suggests not.

The DRC government appears to understand an export ban offers only temporary relief and something more drastic may be needed.

The cobalt price was languishing at multiyear lows of $4.54 (R83) per kilogram before the DRC's surprise decision to suspend exports. In most commodity markets such rock-bottom pricing would have already caused a major supply response.

But the impact in cobalt has been limited. Artisanal production in the DRC has dwindled and new projects such as MMG's Kinsevere cobalt plant, also in the DRC, have been deferred.

Yet, global supply still increased from 238,000 tonnes in 2023 to 290,000 tonnes in 2024, according to the US Geological Survey

The problem is 98% of the world's cobalt comes as a by-product to either nickel or copper, meaning the metal has no independent floor price or self-correcting supply mechanism.

Production has continued booming because of surging nickel output in Indonesia, the world's second largest cobalt producer, and rising copper output in the DRC.

China's CMOC Group reported a 55% year-on-year increase in copper output from its DRC operations last year. With the copper came an extra 60,000 tonnes of cobalt, flooding an already over-supplied market.

Global stocks of cobalt have mushroomed to the equivalent of 233 days worth of consumption, according to consultancy Benchmark Minerals.

The cobalt price has reacted positively to news of the export suspension, the most active CME contract jumping to $6.80 (R124.40) per kilogram in a week.

But a ban on exports is only a short-term panacea, likely leading to a build-up in stocks of intermediate product cobalt hydroxide in the DRC. This is what happened in 2022-2023, when the DRC government suspended exports of copper and cobalt from CMOC in a protracted tax dispute with the Chinese company.

CMOC didn't stop producing during the near year-long export halt and simply accumulated ever more inventory at its production sites.

The impact showed up in China's copper imports from the DRC. After slowing significantly in the first part of 2023 imports accelerated sharply in the second half as the stockpiled metal was exported.

A four-month suspension of cobalt exports is likely to generate the same outcome: a short-term booster followed by renewed price weakness as exports rebound.

The DRC government needs another solution. Options include extending the export ban beyond four months or introducing an export quota system. But as long as CMOC and Glencore keep producing copper, which they will given that metal's high price, they will continue generating by-product cobalt units.

Maybe the DRC could introduce production quotas, but that would represent a double-hit to the country's tax revenues.

The DRC's other problem is the global cobalt glut is not just about over-supply. It's also down to weaker-than-expected demand from the key electric vehicle (EV) battery sector. The EV market continues to grow but cobalt usage is not growing in tandem because carmakers are shifting their battery chemistry to low- or no-cobalt formulas.

They are doing so because of the metal's notorious price volatility and for fear of reputational damage arising from DRC's artisanal production, which is associated with atrocious working conditions and child labour.

The sharp rise in the cobalt price may be good news for the DRC government but in the longer term it will reinforce the view that cobalt is not the metal around which to bet the future of the energy transition.

The EV sector may be losing its appetite for cobalt but that doesn't mean there aren't other potential buyers of the DRC's production.

Cobalt is also a critical metal for the defence sector, where it is used in the form of superalloys for the aviation and aerospace industries.

The US and the EU have made no secret of their desire to reduce China's dominance of the cobalt supply chain, a vice-like grip that results from the country's investment in DRC's production sector.

The West is struggling to build its own cobalt supply chain precisely because Chinese companies such as CMOC are producing so much.

The DRC government has already mooted a Ukraine-style minerals deal with Western countries as it struggles to fend off the M23 rebel group, which is expanding its control of the country's eastern province of Kivu.

Negotiating a long-term supply deal with the West might be the country's best hope of finding a home for its excess production.

A four-month export ban is not going to do the trick.