Radioactive cobalt found at Glencore's DRC unit is good news for the metal
Glencore has a long history of curtailing supply to meet demand, and has long criticised rivals for producing too much and depressing prices
Glencore’s sudden discovery that some of its cobalt is radioactive could not come at a better time.
After a surge in prices in 2017, enthusiasm for cobalt has been fading, partly because of a surge in new supply. But sentiment could be changing after Glencore’s unit in the Democratic Republic of Congo (DRC) suspended cobalt sales after detecting low levels of radioactivity.
“It’s nice to finally have some positive news in the market,” Gordon Buchanan, a senior trader at Stratton Metal Resources, said by phone from London.
Glencore has a long history of curtailing supply to meet demand, and has long criticised rivals for producing too much and depressing prices. The Swiss commodity giant curtailed zinc output at mines in Australia, Peru and Kazakhstan in 2015 when prices languished at six-year lows. It also limited coal output when prices were low.
Metal Bulletin prices for refined cobalt have fallen 5.6% in 2018, but there have been more pronounced declines in the raw material. As supply increased, mined products such as cobalt hydroxide traded at widening discounts. The main effect from Glencore’s halt on sales will be to reverse that trend, Buchanan said.
Shares in Cobalt 27 Capital Corporation, which stockpiles the metal, rallied 13%. And while it’s not the industry benchmark, the London Metal Exchange’s contract also rose.
Glencore plans to stockpile cobalt supplies until the middle of next year, while it builds a special plant to remove radioactivity. Caspar Rawles, an analyst at Benchmark Minerals, described the timing of the announcement as "opportunistic" because Glencore is currently negotiating 2019 supply deals.
Glencore-controlled Katanga Mining would have produced about 30,000 tonnes of cobalt next year, roughly 25% of global supply, according to RBC Capital Markets. Holding this off the market should tighten supplies and support Glencore’s other mine in Congo, which also produces cobalt.
“Assuming there are no uranium issues that this uncovers elsewhere, this production will benefit from any positive price impact,” RBC said.
Katanga boasts one of the DRC's biggest reserves of copper and cobalt, but the mine has underperformed for decades. In 2015, Glencore suspended operations to address the problems and upgrade the facilities. Production restarted in December and the mine is scheduled to hit 300,000 tonnes of copper in 2019, when it will account for about a fifth of Glencore’s global production.
Katanga shares plunged 20% and volume surged after the announcement. The company is mainly owned by Glencore, but a small segment of the stock trades in Canada.