A ban on cobalt exports from the Democratic Republic of Congo (DRC) is a clumsy and temporary solution to the long-term problem of oversupply, traders have told Argus.
The ban announcement, strategically timed to coincide with a large industry event, has caused a stir among market participants and led to some volatility in the market, but traders doubt the long-term impact of the ban.
Prices for cobalt hydroxide remained stable at $5.60-5.80/lb, their lowest since the launch of the assessment and unaffected by the ban so far.
Most participants said the ban will simply lead to stockpiling at mines in the DRC, with as much as 50,000-70,000t of cobalt hydroxide potentially affected, based on a range of trader estimates.
"For now, by implementing only an export ban, they are simply relocating accumulated stockpiles from ports and China back to the DRC," said an analyst at a large mining firm operating in the DRC. "Once the ban is lifted, prices are likely to return to previous levels."
Another trader said there is "plenty of stock outside the DRC not subject to the export ban", with stocks reportedly high at the port of Durban in South Africa, and in Malaysia.
"We may see some impact on supply, with smaller mines potentially shutting down, but I don't think it will be enough to rebalance the market," an analyst said.
Short-term metal volatility
There was some short-term volatility in the metals markets, which tend to be more reactive than hydroxide. Prices for Chinese cut cathodes in Europe rose to $9.50-10.50/lb, while prices for metal in China increased to Yn153-178/kg ex-works on 25 February, up from a 10-year low of Yn150-175/kg ex-works on 20 February. Prices on the Wuxi and CME exchange indexes also jumped.
Traders on the spot market offered material at speculative prices. One trader offered some Chinese material at $11.20-11.25/lb, but with no feedback yet.
The element of surprise may temporarily jolt the market, traders said. "No-one knew in advance... it took several hours for market participants located in [the DRC] to officially confirm the information," one analyst said.
"Of course the news is generating panic, most traders are short, nothing happens like it should happen," said one trader. "It looks like it was released on purpose during the Shanghai conference... to have maximum effect."
Enforcement problems and potential for extensions
Traders in the cobalt market said this kind of ban has not been attempted in the DRC before and could lead to issues with enforcement.
"This one is a complete blanket ban on cobalt, it's not been done before in this kind of form... Most people are waiting for clarity on how [it will be] enforced at the border," one trader said.
The nature of some of the smaller-scale and artisanal cobalt mines in the DRC make any blanket ban difficult to enforce and the border with Zambia has been described as "leaky". The border between the DRC and Zambia was closed from 20 March 2020 to 8 May 2020 owing to Covid-19, which caused a spike in cobalt prices later that year as hydroxide deliveries slowed to China.
Market participants warned that if the ban continues there could be longer-term effects and it could be the opening salvo in a new strategy by the DRC to control its cobalt resources.
"Maybe they are going to use the reverse Chinese strategy, of setting their lowest ideal price and stopping production if it reaches it or drops below it. If that is the case, this stop and start could go on for years," a trader said.
An analyst said a move to quota systems could be good for the DRC, or the country risks "repeating the consequences of previous export bans", leading to a cycle of boom and bust in the markets.
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