Cobalt Market Faces Oversupply Challenges as Metal Reappears in LME Warehouses
The cobalt market is grappling with a significant oversupply, highlighted by the recent delivery of 23 metric tons of cobalt to London Metal Exchange (LME) warehouses. This marks the first warranting of the battery metal on the LME since February 2022. Additionally, over 680 tons of cobalt were reported as off-warrant inventory at the end of June, indicating a substantial surplus in the global market.
Cobalt's recent history has been characterized by sharp fluctuations in price, driven by cycles of rapid demand growth followed by periods of oversupply. The metal's price surged to over $80,000 per ton in March 2022, only to fall to around $24,900 per ton due to an overwhelming increase in production. This surge in supply is primarily attributed to expansions in the Democratic Republic of Congo (DRC) and Indonesia, both major producers of cobalt as a byproduct of copper and nickel mining.
The LME's cobalt contract, which saw minimal trading activity last year, has been revitalized by the recent influx of metal. Trading volumes have reached levels not seen since 2020, with 1,020 lots traded so far this year. This renewed activity in the LME market suggests that traders and producers are increasingly turning to the exchange to manage the oversupply.
Indonesia's rapid emergence as a major cobalt producer, alongside the DRC's continued dominance, has exacerbated the global surplus. Indonesia's cobalt production rose by 86% in 2022, making it the second-largest producer after the DRC. The global market was oversupplied by 18,300 tons last year, following a 10,700-ton surplus in 2022, according to industry reports. Analysts predict that this surplus will persist until at least 2027.
The sharp decline in cobalt prices has prompted some strategic stockpiling efforts, particularly by China's state reserves manager, which purchased 8,700 tons of cobalt last year and plans to acquire an additional 15,000 tons in 2024. Despite these efforts, the market remains under pressure, with prices unlikely to recover until the oversupply is addressed.
The recent activity in the LME's cobalt market may be the beginning of a broader trend as more metal seeks storage amid the ongoing oversupply. The cobalt market is expected to remain challenging in the near term, with continued volatility in prices as the supply-demand imbalance persists.
