US president-elect Donald Trump's plan to impose new tariffs against China, Mexico and Canada appears set to tighten cobalt metal supplies in the US, as one of the three western brands accepted for most aerospace uses will likely be affected.
Trump on the evening of 25 November wrote on his Truth Social platform that he would impose a new 10pc tariff on Chinese goods in addition to a pre-existing 25pc duty on Chinese cobalt, and 25pc duties on Canadian and Mexican goods entering the US.
While the impact of the tariff on Chinese metal entering the US would be largely "irrelevant", according to trading firms, the tariff on Canadian cobalt metal could tighten its supply to the US' aerospace market. Brazilian mining group Vale produces cobalt and nickel at its operations in Port Colborne and Long Harbour in Canada's Ontario province.
Vale produced 2,300t of cobalt metal last year. The other two large western suppliers of cobalt metal, Sumitomo Metal Mining (SMM) in Japan and Glencore's Nikkelverk in Norway, produced 3,800t and 3,500t, respectively, comprising a combined western total of 9,600t.
"If Canadian (cobalt) now clocks a 25pc duty, that makes SMM and Nikkelverk much more valuable," a trading firm said, adding that some suppliers may have negotiated a tariff clause in contracts this year to avoid any potential impact from the US election. Annual contract negotiations for cobalt have extended longer this year because of uncertainty stemming from the US election in early November.
"[Sellers will] have an issue on their long-term contracts if they don't include a tariff clause," a market participant said.
Indonesian supply to increase
A potential source of cobalt metal that could fill the gap left by the potential absence of Canadian material is Indonesia, which until now has avoided Trump's attention.
"The 25pc duty on Canadian imports will impact Vale, basically puts them in a similar status as Chinese, so [we] could see a dramatic drop in imports," a trading firm said. "Normally, this would tighten the market further, but I think this will be easily compensated by the influx of Indonesian metal that will hit the US market."
Many ASEAN countries, including Indonesia, have a delicate balancing act to play with Trump. They must navigate between maintaining their relationship with their largest trading partner — in most cases China — and benefiting from US-based global corporations' moves to diversify supply chains away from China.
Nowhere is Indonesia's unsteady equilibrium clearer than in the battery market, where several nickel projects, a few which also produce cobalt, are in development thanks to investments from both Chinese and western companies.
Some of this cobalt is heading to the US, and several trading companies are confirmed by Argus to have Indonesian material on the water. The new supplies, produced by PT Lygend in Indonesia, are shipped to a warehouse in Ningbo, China, then packaged and sent onwards to the US. Across August and September, Indonesia exported 180t of cobalt metal to China, much of which was shipped to the US.
Cut cathodes and that with quality similar to Chinese brands recently have sold on the international market at either side of $10/lb. Similar prices could see Indonesian cobalt compete with existing brands in the US, but it will take "up to two years" to become qualified for use in aerospace applications, a trading source said.
Indonesia's trade with the US last year amounted to $23bn, making it the country's second-largest trading partner after China at $65bn. Indonesia's trade with China has grown at a compound annual growth rate of 20pc over the past 10 years, while trade with the US grew at 4.59pc.
Indonesia's combined trade with the rest of the world climbed by 7pc over the same period, data show. US investments in Indonesia totalled $67bn from 2014-23, according to a report by the US Chamber of Commerce.
"Jakarta's view will continue to be how to extract the most out of both powers and engage more partners for Indonesia's own interest," said research group ASEAN Wonk Global chief executive and founder Prashanth Parameswaran in a recent report for US congressional think-tank the Wilson Center.
Trump has clearly indicated a desire to impose tariffs on imports from much of the world, hoping to isolate countries and renegotiate trade deals on terms that are favourable to the US. There is a risk that Indonesia may end up on this list, as fellow ASEAN country Vietnam discovered in 2019, when Trump labelled it the "worst abuser" of US trade policy. But at this point, there is no clear indication either way, and cobalt trading companies are looking to use this opportunity while it lasts.
