A report from Reuters suggests that China is gearing up to make a big move in the cobalt market, with plans to acquire up to 15,000 metric tons (MT) of cobalt metal from local producers this year.
The acquisition, overseen by the state’s National Food and Strategic Reserves Administration, aims to bolster the country's stockpiles as it jumps from the 8,700 MT of cobalt metal purchased last year.
The country’s decision to purchase such a substantial amount of cobalt is driven by several factors.
Firstly, cobalt is a critical material in the production of electric vehicle (EV) batteries, an industry in which China holds substantial investments. Amassing a large cobalt reserve will ensure a steady supply of material for the country's growing EV market and support its broader energy transition and technological advancement goals.
Additionally, cobalt is vital for the defense and aerospace industries due to its use in high-strength alloys and magnets that are essential for communication and advanced weaponry.
Most of the cobalt that China plans to purchase is expected to come from domestic producers.
Currently, a significant portion of the world’s cobalt supply originates from the Democratic Republic of Congo (DRC), which produced over 170,000 MT last year, accounting for approximately 77 percent of global output.
Chinese companies, notably CMOC Group (HKEX:3993), have a strong presence in the DRC. The company's Tenke Fungurume mining site is one of the largest cobalt producers globally. Given the strategic importance of cobalt, China is likely to continue leveraging its investments in the DRC to secure steady supply.
China is a dominant player in cobalt refining, processing about 80 percent of the world's cobalt. Its planned purchase of cobalt metal comes at a time when cobalt prices are at their lowest in nearly five years.
The global cobalt market is currently experiencing a surplus, with estimates sourced by Reuters indicating oversupply of around 20,000 MT in 2024 if China's buying goes through as planned.
However, industry experts have expressed mixed views on the impact of China's purchase. Some believe it will provide a temporary boost to cobalt prices, which have been under pressure due to the oversupply.
Others see it differently. "This move could take some pressure off cobalt prices, but it won't be a game-changer in an oversupplied market," an unnamed industry source commented to Reuters.
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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.