Cobalt: Will the Mutanda shutdown bring an end to intermediate oversupply?

Glencore DRC copper mine

On 7th August, Glencore confirmed that it would suspend production at the world’s largest cobalt mine. Mutanda will be transitioned to temporary care and maintenance by the end of the year, “…reflecting its reduced economic viability in the current market environment, primarily in response to low cobalt prices”.

Roskill View

Glencore cited a combination of low cobalt prices, a lack of access to economic oxide ore, increased costs (particularly for acid) and higher taxation as the core factors making Mutanda uneconomic. The decision to suspend Mutanda is a bold one, but a decision that Glencore has taken before. The company cut zinc output in 2015 when prices were falling, and it could be argued that the suspension of Katanga in 2016 and 2017 helped create the market tightness that saw cobalt prices skyrocket from 2017 onwards.

Price rises in 2017 and H1 2018 were underpinned by huge demand for cobalt feedstock and a tightness in the intermediates market. High demand, set against relatively tight supply, meant that producers were receiving very high (up to 90%) payables. The intermediates bottleneck, however, was short lived. High prices and payables led to an enormous supply response from producers in the DRC, including artisanal producers. New supply from sizable producers like Glencore, coupled with swing artisanal production, put the market into oversupply and large stocks of hydroxide were built up.

It is this intermediates oversupply, as well as other factors like weaker sentiment, and sufficient supply of refined cobalt metal and chemical, that has caused the drop in cobalt prices. By removing around 27ktpy of supply, the suspension of Mutanda will help the intermediates market find balance, should existing stocks be consumed. That said, much will still depend on output levels from Glencore’s competitors, the ramp-up of other key projects and operations, and future levels of artisanal production.

Roskill’s NEW report: Cobalt Outlook to 2029, 15th Edition was published in July 2019. Click here to download the brochure or sample pages or access further information.

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This article was written by Jack Bedder. Please get in touch below if you wish to discuss further:

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