China Plans to Buy 2,000 Tons of Cobalt for Strategic Reserve

Cobalt’s steady bounce back over the past month faces headwinds even as the market is poised to tighten from state stockpiling in China.

While a bout of government-backed buying should be supportive for prices, there’s still little certainty around the timing and the impact of those purchases. This move had been basically priced into the market, said Serafina Huo, analyst at Shanghai Metals Market.

“There’s limited room for the cobalt price to surge further this year,” she said by phone. “Downstream companies have recently completed their seasonal stockpiling and end demand is generally weak this year.”

Authorities in the battery material’s top global market will buy 2,000 tons to place in the nation’s strategic commodity reserves, according to people familiar with the matter earlier this week. Prices had already surged 10% in a month amid pandemic-related supply disruptions from Africa.

China Plans to Buy 2,000 Tons of Cobalt for Strategic Reserve

Prices had declined steadily this year as the coronavirus crisis hammered demand from crucial sectors for cobalt, from electric-vehicle batteries to aerospace alloys. But there’s been a pick-up since July, partly because Covid-19’s spread in Africa is hampering shipments to China from the Democratic Republic of Congo via South African ports.

“Even if China goes ahead with these purchases, it will do so slowly and in small steps,” Xu Aidong, analyst at Antaike said in a Wechat post. When state authorities ordered 5,000 tons of purchases in 2015-2016, the boost to prices proved short-lived, she said.

EV Boost

Cobalt will remain a key material for battery for electric cars in the near term and its accelerated sales in China from last month should aid demand, said Wang Wentao, general manager of Shanghai Qin Cobalt Industrial Co., a trader of the metal.

Wholesale sales of new-energy vehicles in China advanced for the first time this year in July, with a 19% jump year-on-year. While China’s economy has been recovering from the coronavirus slump, there’s still little sign yet for a broad rebound in domestic consumption.

Cobalt production in the DRC is expected to tumble 25% this year compared to 2019, according to Fitch Solutions, as increased governance of mining activity due to Covid-19 adds further headwinds, after the idling of Glencore Plc’s Mutanda mine.

Ultimately, the intensity of any further virus disruption in DRC, or neighboring countries, may be more decisive than any state purchasing in China.

China has a “serious shortage” of cobalt resources and it mostly relied on imports from Democratic Republic of Congo, Beijing Antaike’s Xu added. “The domestic market was in surplus in the first half of the year, but it is worrying that the supply of the raw material will decline, if the pandemic situation in DRC worsens.”

©2020 Bloomberg L.P.

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