At 120,000 mt, the Democratic Republic of the Congo was responsible for nearly 70% of global cobalt mine production in 2021, according to the USGS. However, production could shrink this year due to a suspension of exports.
The Congo-based Tenke Fungurume copper and cobalt mine, which is the world's second-largest cobalt mine, has suspended all cobalt exports, effective July 16, 2022, according to Reuters. A court-appointed administrator requested the stoppage, as the Tenke Fungurume mine is currently in the midst of a dispute between majority-owner CMOC, a Chinese mining concern, and minority-owner Gecamines, a state-owned Congolese miner, over how to market the mine's output. CMOC is denying the administrator access to the mine site. Gecamines has accused CMOC of understating the mine's reserves to reduce royalty payments CMOC pays to Gecamines. Logistics companies were made aware of the stoppage on July 16. |
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CME Cobalt marched higher throughout 2021 and continues to do so in 2022. The suspension of Congolese cobalt exports could continue this rally. |
The CME started cobalt futures in late 2020, but volume and open interest has only picked up in recent months. In fact, open interest has nearly doubled from 2,480 contracts on June 2, 2022, to 5,091 contracts on July 18, 2022. There is currently no options market, but end-users such as electric vehicle producers can hedge future needs via swaps. Using swaps can help guard against a potential increase in cobalt input costs. Such positions are standard for consumer hedging but can result in opportunity costs or cash costs if metal prices decline. Please contact AEGIS for specific strategies that fit your operations. For information on Cobalt futures, please visit https://www.cmegroup.com/education/lessons/hedging-with-cobalt-metal-fastmarkets-futures.html. (Open interest data from CME, https://www.cmegroup.com/markets/metals/battery-metals/cobalt-metal-fastmarkets.volume.html) |
