The opinions expressed here are those of the author, a columnist for Reuters

By Andy Home

LONDON, March 7 (Reuters) - The Democratic Republic of Congo's four-month suspension of cobalt exports is a sign that even the world's largest producer is now feeling the pain of historically low prices.

The news has given the cobalt market a fillip and the impact is already rippling through the supply chain with one Congolese operator, Eurasian Resources Group $(ERG.AU)$, declaring force majeure on deliveries of the electric vehicle battery metal.

But will it be enough to address the underlying problems of a structurally over-supplied market?

History suggests not.

The Congolese government appears to understand that an export ban offers only temporary relief and that something more drastic may be needed.

FEELING THE PAIN

The cobalt price was languishing at multi-year lows of $10 per lb prior to the Congo's surprise decision to suspend all exports.

In most commodity markets such rock-bottom pricing would have already caused a major supply response.

But the impact in cobalt has been limited. Sure, artisanal production in the Congo has dwindled and new projects such as MMG's 1208.HK Kinsevere cobalt plant, also in the Congo, have been deferred.

Yet global supply still increased from 238,000 metric tons in 2023 to 290,000 tons in 2024, according to the U.S. Geological Survey

The problem is that 98% of the world's cobalt comes as a by-product to either nickel or copper, meaning the metal has no independent floor price or self-correcting supply mechanism.

Production has continued booming because of surging nickel output in Indonesia, the world's second largest cobalt producer, and rising copper output in the Congo itself.

China's CMOC Group 603993.SS reported a 55% year-on-year increase in copper output from its Congo operations last year. Along with the copper came an extra 60,000 tons of cobalt, flooding an already over-supplied market.

Global stocks of cobalt have mushroomed to the equivalent of 233 days worth of consumption, according to consultancy Benchmark Minerals.

STEMMING THE FLOOD

The cobalt price has reacted positively to news of the export suspension, the most-active CME contract OCBc3 jumping to $15 per lb in the space of a week.

But a ban on exports is only a short-term panacea, likely leading to a build-up in stocks of intermediate product cobalt hydroxide in the Congo.

This is what happened in 2022-2023, when the Congo government suspended exports of both copper and cobalt from CMOC in a protracted tax dispute with the Chinese company.

CMOC didn't stop producing during the near year-long export halt and simply accumulated ever more inventory at its production sites.

The impact showed up in China's copper imports from the Congo. After slowing significantly in the first part of 2023 imports accelerated sharply in the second half as the stockpiled metal was exported.

A four-month suspension of cobalt exports is likely to generate the same outcome - a short-term booster followed by renewed price weakness as exports rebound.

The Congo government needs another solution. Options include extending the export ban beyond four months or introducing an export quota system.

But as long as the likes of CMOC and Glencore GLEN.L keep producing copper, which they will given that metal's high price, they will continue generating by-product cobalt units.

Maybe the Congo could even introduce production quotas, but that would represent a double-hit to the country's tax revenues.

ELECTRIC DREAMS FADE

The Congo's other problem is that the global cobalt glut is not just about over-supply. It's also down to weaker-than-expected demand from the key electric vehicle $(EV)$ battery sector.

The EV market continues to grow but cobalt usage is not growing in tandem because car-makers are shifting their battery chemistry to low- or no-cobalt formulas.

They are doing so because of the metal's notorious price volatility and for fear of reputational damage arising from Congo's artisanal production, which is associated with atrocious working conditions and child labour.

The current sharp rise in the cobalt price may be good news for the Congo government but in the longer term it will simply reinforce the view that cobalt is not the metal around which to bet the future of the energy transition.

WANNA BUY SOME COBALT?

The EV sector may be losing its appetite for cobalt but that doesn't mean there aren't other potential buyers of the Congo's production.

Cobalt is also a critical metal for the defense sector, where it is used in the form of super-alloys for the aviation and aerospace industries.

Both the United States and the European Union have made no secret of their desire to reduce China's dominance of the cobalt supply chain, a vice-like grip that results from the country's investment in Congo's production sector.

The West is struggling to build out its own cobalt supply chain precisely because Chinese companies like CMOC are producing so much.

The Congo government has already mooted a Ukraine-style minerals deal with Western countries as it struggles to fend off the M23 rebel group, which is expanding its control of the country's eastern province of Kivu.

Negotiating a long-term supply deal with the West might be the country's best hope of finding a home for its excess production.

A four-month export ban is not going to do the trick.

(Editing by David Evans)

((andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter https://twitter.com/AndyHomeMetals))