Macro

China Plans Record 15,000 Tons Cobalt Purchase Amid Price Lows

China to Buy 15,000 Tons of Cobalt for State Reserves Amid Low Prices

By Athena Xu

5/23, 08:53 EDT
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Key Takeaway

  • China plans to purchase a record 15,000 tons of refined cobalt for state reserves, with prices between $12.5 and $13.8 per pound.
  • The move comes as cobalt prices hit five-year lows due to surplus production in the Democratic Republic of Congo and Indonesia.
  • China's significant role in global refining and strategic stockpiling could impact cobalt market dynamics amid Western efforts to reduce supply-chain dependence on China.

China’s Record Cobalt Purchase

China is gearing up to make its largest-ever purchase of cobalt for state reserves, with the National Food and Strategic Reserves Administration planning to buy around 15,000 tons of refined cobalt. This move comes as cobalt prices hover near their lowest levels since 2019, driven by a global surplus. The planned purchase price is expected to be between 200,000 yuan and 220,000 yuan per ton, equivalent to approximately $12.5 to $13.8 per pound. The National Food and Strategic Reserves Administration has not commented on the matter, but the planned purchases were initially reported by Reuters.

The cobalt market has been under pressure due to booming production in the Democratic Republic of Congo (DRC) and Indonesia, where cobalt is a by-product of copper or nickel mining. China, which accounts for about 80% of global cobalt refining, is looking to capitalize on the low prices to bolster its strategic reserves. Last year, China bought 8,700 tons of cobalt, according to Darton Commodities. The global cobalt surplus widened to about 14,200 tons in 2023, and this surplus is expected to persist as supply growth continues to outpace demand.

Nickel Prices Surge Amid Supply Concerns

Nickel prices on the London Metal Exchange have surged past $20,000 per ton for the first time since September, driven by concerns over supply disruptions from New Caledonia and ongoing sanctions on Russian metal. New Caledonia, which holds 20% to 30% of the world’s nickel reserves, is experiencing significant unrest and production challenges. This has led to a temporary relief in nickel prices, which had fallen over 45% in 2023 to around $19,000 per ton, below the estimated production cost of $22,000 per ton.

Nickel is a critical component in manufacturing stainless steel and is indispensable for low-carbon technologies such as electric vehicle (EV) batteries, wind turbines, and solar panels. The recent price surge reflects the market's response to potential supply constraints, highlighting the metal's strategic importance in the global economy.

New Caledonia's Nickel Industry in Crisis

Despite its vast reserves, New Caledonia's nickel industry is in turmoil. The territory's overreliance on nickel has been described as a "curse" by commodities economist Philippe Chalmin, who noted that the industry employs a quarter of the territory’s workforce. The crisis has been exacerbated by Indonesia's rapid production expansion, heavily financed by China, which has pressured global nickel prices.

In contrast, New Caledonia's production has stagnated. The closure of Glencore’s Koniambo Nickel plant has further strained local communities, particularly in the pro-independence Northern Province. French miner Eramet SA has also significantly reduced its operations, adding to the economic challenges faced by the territory.

Global Market Dynamics

The global nickel market is influenced by several factors, including Indonesia's production boom and China's financial backing. Indonesia's aggressive expansion has increased global supply, putting downward pressure on prices. However, the recent supply disruptions from New Caledonia and sanctions on Russian metal have created a temporary price spike.

"Nickel is the curse of New Caledonia," said Philippe Chalmin, highlighting the territory's economic vulnerability due to its dependence on a single resource. The market's reaction to these supply concerns underscores the delicate balance between supply and demand in the nickel industry.