Cobalt market stung by record oversupply

The cobalt market has been overwhelmed by a record glut as Chinese companies boost their output, with the surplus of the key electric car battery metal set to last until 2028, according to an influential market report.

Production of the silvery metal surged 17 per cent year-on-year in 2023, flooding the market as global demand growth for electric vehicles sharply decelerated, according to an annual review by Darton Commodities, a UK-based cobalt trader.

The broker predicted that the market would be oversupplied until 2028 after Chinese producer CMOC raised volumes from the Democratic Republic of Congo.

The surge in output is expected to strengthen China’s dominance over the production and price of a metal used in electronics, electric cars and aviation.

“Surplus supply coming from DRC and Indonesia projects, combined with slowing EV demand growth, caused a record surplus in 2023,” said Andries Gerbens, director of Darton Commodities, adding that demand only grew 12 per cent.

Cobalt helps to stabilise lithium-ion batteries and avoid them catching fire, but the rapid uptake of electric car batteries free of cobalt and nickel in China has dimmed the demand growth forecasted for the metal.

The surplus of cobalt from the CMOC mines in the central African nation helped to halve the metal’s annual average price to $15.10 in 2023 compared with 2022, the lowest annual average price since 2016. The DRC is home to the world’s main cobalt deposits and generated just over three-quarters of global output.

CMOC raised production at its two mines in the DRC by 172 per cent last year, allowing it to overtake Glencore as the world’s largest producer of cobalt, the report added. Both mines were sold to CMOC by US copper mine Freeport McMoran after pressure from activist investor Carl Icahn.

As a result of aggressive Chinese investment, Darton Commodities now expects China to own or operate as much as 60 per cent of the world’s cobalt supply by 2025, up from 54 per cent currently. Just last year, it had only expected a 50 per cent market share by mid-decade.

Indonesia has also been increasing the supply of cobalt — which is produced as a byproduct from nickel extraction — at Chinese-owned mines, doubling output to 18,200 tonnes, equivalent to 8 per cent of global supply.

The rebalancing between supply and demand that will lead to a sustained recovery in prices is forecast to take three years longer than Darton Commodities had previously expected.

While likely to provide some relief for consumers by lowering the input prices for new electric cars and mobile phones, the market downturn is causing pain for cobalt producers such as Glencore, which has cut its production forecast for 2024.

The Swiss trading house was forced to take a $1bn impairment charge on its Mutanda mine in the DRC with its annual results last week after adjusting production plans. It now expects to produce 35,000 to 40,000 tonnes of cobalt this year, down from 41,300 tonnes last year.

However, chief executive Gary Nagle struck a less gloomy note on the market outlook. “This is an issue not about demand. This is an issue about supply,” he said. “We do see a path to a supply deficit again in cobalt over the coming periods.”

The cobalt market malaise mirrors the dire situation for other key battery metals lithium and nickel. For all three, Chinese mining firms have lifted production at a far more ferocious rate than expected, leaving western producers to close mines, cut production and slash expansion plans.

Beijing has, however, been supporting cobalt prices by soaking up surplus supplies to store in a strategic reserve when they dip too low, buying an estimated 21 per cent of global cobalt metal supply, the report added.