Analysis-China turbo-charges cobalt mine output despite price crash

By Eric Onstad

LONDON (Reuters) – Chinese-owned companies are aggressively expanding cobalt mining in Congo and Indonesia even while prices crash, as they bid to raise market share of the metal used in batteries for the country’s electric vehicle (EV) industry.

Chinese cobalt producers have seemed unfazed by oversupply that has knocked prices down by more than half in the past 18 months, with some said to benefit from state support for a sector seen as vital to China’s EV industry, as well as firmer prices of metals with which cobalt is mined, such as copper.

China’s CMOC Group, which boosted its cobalt output by 144% during the first three quarters of 2023, is now on track to become the world’s biggest cobalt producer, overtaking commodity group Glencore.

CMOC is due to lift its market share of the global mined cobalt market from 11% in 2022 to nearly 30% by 2025, said Jorge Uzcategui, an analyst at consultancy Benchmark Mineral Intelligence.

Its Kisanfu mine in Democratic Republic of Congo (DRC) is partially owned by China’s CATL, the world’s largest battery maker for EVs.

The group is able to operate at low costs, likely helped by receiving cheap financing from the Chinese government, Uzcategui said. CMOC is listed in Hong Kong, but according to its LinkedIn profile has “state-owned capital participation”.

“Is CMOC trying to flood the cobalt market in an attempt to control a larger share of the market and oust the marginal producers, giving them more control over prices in the medium to long term? That is a possibility,” said Uzcategui.

When contacted for comment about the impact of weaker prices on output, CMOC said that there were positive aspects to rising cobalt production, but it did not respond to a question about Uzcategui’s comments.

“The growth of cobalt supply has to some extent dispelled downstream concerns about (its) sustainability,” a CMOC spokesperson told Reuters.

“Our cobalt products are mainly sold through long-term contracts and are not subjected to short-term market fluctuation.”

China’s MMG Group has also pressed on with expansion at its Kinsevere mine in Congo, while Jinchuan Group International Resources is likewise expanding its DRC cobalt output.

BOOM TO BUST

Silvery-blue cobalt was once seen as an indispensable element of EV lithium-ion batteries, with prices soaring in May 2022 to four-year highs.

But EV sales have been slowing as inflation hits consumers and governments cut subsidies, while batteries without the mineral have been rising in popularity.

A combination of high prices and ethical concerns about child miners and unsafe conditions in Congo have prompted some battery companies to look for alternatives.

“Lithium is pretty fundamental to a lithium-ion battery… but with cobalt, you can design it out,” said Alex Holland at consultancy IDTechEx.

Increasing nickel and cutting cobalt increases energy density, allowing longer driving ranges in EVs, he added.

While lower cobalt prices may revive use of higher-cobalt batteries, content of the metal in popular nickel manganese cobalt (NMC) batteries has been declining, while lithium iron phosphate (LFP) batteries contain none at all.

INDONESIA HELPS OFFSET DELAYS

Global refined cobalt supply is expected to climb 23% this year, creating a surplus of 74,800 metric tons by 2024, according to Morgan Stanley.

No. 1 producer DRC has kept miners under pressure to ramp up output to maintain the millions of dollars it receives each year in mining royalty and tax payments, analysts said – particularly with an election upcoming this month.

Analysts had expected at least some major cobalt producers to impose cutbacks, as happened recently in nickel to curb excess supply, but only scant action has materialised.

Jervois Global in March suspended the final construction of what would be the only U.S. primary cobalt mine, while debt-laden Miner Chemaf SA is up for sale, according to a document seen by Reuters in October, leaving two copper-cobalt projects in Congo 85% complete.

Major producer Glencore temporarily closed its Mutanda mine there in 2019 due to low prices and its CEO said in August it was considering similar action again, but output so far this year has shown no signs of cutbacks.

Glencore declined to comment on whether it planned to suspend any cobalt operations in the future, but depleting ore grades were likely to trim output at Mutanda, sources told Reuters.

Nonetheless, delays and cuts have been more than offset by new projects, including in Indonesia, which last year became the world’s second biggest producer, with many owned by Chinese companies.

“Our view is that Indonesia is a game changer for cobalt,” said Bedder at Project Blue.

Indonesia is expected to roughly quadruple its production of cobalt in mixed hydroxide precipitate (MHP) by 2033 and may expand even further if all projects go ahead, Project Blue forecasts.

“In the next five years or so, we think they’ll be oversupply in the market. So essentially that’s going to mean prices are going to remain low for the foreseeable future,” said Thomas Matthews at CRU.

 

(Additional reporting by Felix Njini in Nairobi, Sonia Rolley in Kinshasa and Siyi Liu in Beijing; Editing by Veronica Brown and Jan Harvey)