The Democratic Republic of Congo (DRC), the world’s largest supplier of cobalt, has announced a three-month suspension on the export of this valuable metal, which is primarily used in electric vehicle batteries. This decision was made by the government as it grapples with falling prices on the global market due to oversupply.
On February 22, 2024, the suspension came to effect, as signed by Patrick Luabeya, the president of the Authority for the Regulation and Control of Strategic Mineral Markets (ARECOMS), along with Mining Minister Kizito Pakabomba. This regulation aims to stabilize the cobalt market, which has seen prices plunge due to overproduction.
"This measure aims to regulate the supply on the international market, which is facing overproduction," said Luabeya, explaining the logic behind the suspension. With the DRC producing around 75% of the world’s cobalt, authorities are concerned about state revenue as export prices have fallen dramatically; they were once above $80,000 per metric ton, but have now dropped to below $10,000 per metric ton, the lowest level seen since 2002.
Between 2021 and 2023, cobalt production from the DRC soared from approximately 90,000 to 140,000 metric tons. The suspension is part of the government's efforts to regain control over its market dynamics, especially during the election campaign months leading to President Felix Tshisekedi's reelection bid. Notably, the DRC exported over 100,000 tons of cobalt during the first half of 2024 alone.
Experts have weighed the potential impact of this suspension. Ian Liu, cobalt purchasing manager for the Chinese battery producer CNGR Advanced Material, remarked, "All are panicking, and we don’t know how to secure the material; we need long-term support for cobalt prices, not sudden export stops causing chaos."
Despite the dramatic price drop, the significant participation of companies like China Molybdenum (CMOC), which controls about 40% of the market, implies continued pressure on global supply. CMOC has increased production from 56,000 tons to approximately 114,000 tons last year, exacerbated the oversupply situation.
Adding to market woes, cobalt hydroxide, the primary form of cobalt produced by the DRC, has also dropped below $6 per pound. Therefore, the strategy of suspension is being closely monitored, as it could delay the oversupply but may not correct the underlying issues inherent to cobalt production levels and market dynamics.
“This suspension might reduce the cobalt supply by around 20,000 tons per month,” noted Xu Aidong, analyst at Beijing Antaike Information, reinforcing the notion of how regulatory measures could shift market expectations. Nevertheless, analysts like Will Talbot from Benchmark Mineral Intelligence are skeptical, believing the suspension may merely increase stockpiles.
The international cobalt prices reacted quickly to the announcement. The most traded March Contracts for electrolytic cobalt rose almost 3% following the news. Meanwhile, Chinese cobalt stocks recorded gains, indicating anticipated market adjustments as companies adjust to the new regulatory environment.
The suspension has sparked debate about the long-term strategy of the DRC government. While some argue it may help stabilize prices, others advocate for more sustainable solutions to the fluctuation issue facing cobalt. Regardless of the immediate effects, many see the DRC’s decisions as pivotal to the future of cobalt supply globally.
Market expectations hinge on whether larger producers like Glencore and Eurasian Resources Group will respond by adjusting their production levels, which could drastically influence future cobalt market dynamics. "If production does not decrease, then this suspension might not have the desired effects," Talbot concluded.
Overall, the DRC's decision demonstrates the complexity of balancing domestic needs and international market pressures. The suspension of cobalt exports is not just about immediate responses to falling prices, but also about preparing for future economic stability within the burgeoning electric vehicle market.