25/05/14
Quotas most likely option for DRC cobalt export restart
Quotas most likely option for DRC cobalt export restart
London, 14 May (Argus) — The resumption of cobalt exports from the Democratic
Republic of Congo (DRC) under a quota system appears almost inevitable, market
participants said ahead of the Cobalt Institute's annual conference in Singapore
this week. With cobalt prices rising and stocks tightening globally, market
participants increasingly expect that the DRC's blanket cobalt export ban —
implemented in late February — will transition into a more sustainable quota
system. The current freeze has pushed up global cobalt prices, but also blocked
the flow of royalties to the Congolese treasury, creating what several traders
described as a politically deliberate but ultimately transitional phase. "This
is not [Congolese trading and mining firm] Gecamines — it's Kinshasa, it's the
ministry of mines, and ultimately it's the presidency," one trader said,
emphasising the centralised nature of the decision-making this time around. The
government's key grievance is financial, multiple sources agreed. Cobalt royalty
revenues have collapsed in recent years, according to several market
participants. "They've lost billions," said one source with direct links to the
ministry of mines. "This only makes sense if they replace the ban with something
dynamic that keeps prices up and restarts the royalty flow." Prices up, revenues
frozen Prices for cobalt hydroxide have nearly doubled since February, from
$6/lb cif China to close to $12/lb — a sharper jump than during than any
previous bans on DRC exports, including the ban on Chinese producer CMOC's Tenke
Fungerume mine in 2022, now the largest cobalt mine in the world ( see graph ).
But with exports halted, the Congolese government has reaped none of the upside.
"They got the prices up, sure — but right now, there's nothing coming in. No
exports mean no royalties," one trader noted, "A quota is the only real way
forward." Market participants expect any such quota regime to be modelled
loosely on Opec, with the DRC restricting supplies in a co-ordinated way to
support pricing. "The officials running this are oil and gas guys," one source
who has met with the DRC delegation said. "They want Opec on steroids. They've
said that outright." Others draw comparisons with Indonesia, which already
operates a quota system for its nickel ore mining permits and
mixed-hydroxide-precipitate (MHP), which contains cobalt. "Indonesian quotas are
real, but they're built into nickel flows. It's not exactly apples to apples," a
trader said. "So for Indonesia to reduce cobalt output, they'd have to reduce
nickel output, which they don't want to do." Stockpiles thinning, squeeze ahead
Record-high first-quarter cobalt hydroxide production by CMOC and global trafing
and mining firm Glencore — at 30,000t and 9,500t, respectively — suggests a
healthier supply picture than is really the case. "Production hasn't stopped,
but that's the point — if exports don't resume, stocks will just build up inside
the DRC or dry up abroad," a trader said. Some estimates place global cobalt
hydroxide inventories at 50,000–70,000t, but availability depends heavily on who
holds what. "20,000t with a larger producer is not the same as 20,000t with a
small recycler," one trader said. "Some are more inclined to sit on it and wait
for prices to jump." Multiple participants expect a squeeze to emerge in the
international market by August, as final pre-ban shipments are consumed and no
new material enters the pipeline. "One producer told people there'd be no more
shipments after May/June," one source with direct knowledge of trading flows
said. "That means by July, China is chewing through remaining stocks — and by
August, you're in crunch territory." Some traders are already stockpiling, with
exporters deliberately delaying cargoes to benefit from rising prices, market
participants said. Strong enforcement The DRC's export restrictions are being
heavily enforced. A customs brigade with military backing was deployed recently
to Kasumbalesa on the DRC-Zambia border — the country's only significant cobalt
export route — to prevent smuggling and enforce the ban. "People writing about
illegal smuggling clearly haven't been to Katanga. There's one road. One
crossing. It's tightly controlled," a trader told Argus . The new level of
sophistication, some argue, is why a transition to quotas feels inevitable.
"Extending the ban helps no one in the long term — not the DRC, not Chinese
refiners, not the market," an industry consultant said. "A quota system is the
only option that gives them both price and payment." Market sentiment remained
mixed ahead of next week's conference, with cobalt spot trading thin, ranging
from $15-16/lb in-warehouse Rotterdam for Chinese material, $17-18/lb for
western standard grade and $19-20/lb for alloy grade. Whether the announcement
comes in Singapore or in the weeks that follow, few now doubt the final outcome.
"This [export ban] isn't a one-off," one participant said. "It's the start of a
new model. The days of Congo flooding the market and watching others profit are
over." By Chris Welch Cobalt prices post-DRC supply shocks pc Send comments and
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