Glencore's Congo Halt Offers Jolt for Ailing Cobalt Market

(Bloomberg) -- Glencore Plc’s plan to halt a fifth of the world’s cobalt production is set to offer some respite for prices of the battery material that cratered in the past year on a supply glut.

The mining giant will put the Mutanda copper-and-cobalt facility in the Democratic Republic of Congo on care and maintenance by the end of this year due to lower prices, the company announced as it reported a 90% fall in half-year net income. Shares in major Chinese cobalt companies rallied on Wednesday, with China Molybdenum Co., which also mines in the African nation, rising the most in four years in Hong Kong.

“This should lift sentiment in the global cobalt market,” Daniel Chen, an analyst at CRU Group, said by phone from Guiyang in southern China. “Previously, consensus was that cobalt would be very oversupplied for two or even three years ahead, but now the market will pay more attention to risks in the DRC, and risks on the supply side.”

Cobalt’s been on a two-year roller coaster as the industry adjusts to an era of expanding demand for the material used in electric-vehicle batteries. Prices are down more than 70% since April last year, after a buying frenzy on concerns of a shortage gave way to an unexpectedly strong wave of new supply. The DRC produces more than two thirds of the world’s cobalt.

The material’s medium and long-term fundamentals remain positive and Mutanda will restart “once the current weak and oversupplied cobalt market sufficiently recovers,” Glencore said. Many cobalt operations across the industry are currently uneconomic, it said. Shares fell 2.3% in London.

Rival Shares

“Chinese producers are likely to gain market share on the back of the mine closure,” Gerry Alfonso, director of international business department at Shenwan Hongyuan Group Co., said by email.

Mutanda produced about 27,000 tons last year out of a global total of around 135,000 tons, according to trading firm Darton Commodities. A second Glencore unit in Congo separately lowered its guidance for 2019 in a Tuesday announcement. In 2020, Glencore expects cobalt output of about 34,000 tons, about half of guidance given at the end of last year.

“In the short term, confidence in the cobalt price could be boosted,” Hong Lu, researcher at Shanghai Metals Market, said in a note. “But if prices rise too high, new capacity can come in to feed extra demand, and Glencore won’t be happy to see that.”

Market reactions in Hong Kong and mainland China:

• China Molybdenum, which operates the Tenke Fungurume mine in DRC, closed 20% higher in Hong Kong. Stock rose by 10% daily limit in Shanghai.
• Zhejiang Huayou Cobalt Co., the world’s biggest refiner, and Nanjing Hanrui Cobalt Co. both also gained by 10% daily limit.

--With assistance from Amanda Wang and Thomas Biesheuvel.

To contact Bloomberg News staff for this story: Martin Ritchie in Shanghai at mritchie14@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Jake Lloyd-Smith

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With assistance from Bloomberg