Cobalt Supply Changes

The world's largest cobalt producing country, the Democratic Republic of Congo (DRC), has officially announced that it will end the cobalt export ban implemented since February this year and instead implement a strict export quota system. This decision is expected to have a profound impact on the global supply chain of electric vehicle batteries.

Policy Change: From Comprehensive Ban to Fine Quotas
According to a statement released by the Strategic Mineral Market Supervision and Control Authority (ARECOMS) of the Democratic Republic of Congo on Sunday, September 21, the current cobalt export ban will be officially lifted on October 15, 2024. Starting from October 16th, the new export quota policy will take immediate effect.
According to the new regulations:

• For the remaining period of 2025 (i.e. from October 16th to December 31st), the country's mining companies are allowed to export a maximum of 18125 tons of cobalt.
• In 2026 and 2027, the annual export quota limit is set at 96600 tons.

This quota is in stark contrast to the actual production capacity of the Democratic Republic of Congo. According to data from professional trading company Darton Commodities, the country's cobalt production is expected to approach 220000 tons in 2024, accounting for approximately 70% -75% of the global total production. This means that the annual export quota in the future is still less than half of its expected production in 2024.

Quota allocation and national strategy
ARECOMS stated that quotas will be allocated proportionally based on each company's historical export volume and will be "notified to each company". It is worth noting that 10% of the authorized export volume for 2026 and 2027 will be directly allocated to ARECOMS, and the statement states that this portion will be used for national strategic key projects.
In addition, the institution retains the power to adjust the overall quota based on market trends or to promote local processing of cobalt hydroxides into high value-added products, leaving room for dynamic policy adjustments.

Policy background and market objectives
The background of this policy adjustment is the success of the previous export ban. Since February 22 this year, when cobalt prices fell to a nine-year low and were first announced to suspend exports (and extended in June), cobalt prices have rebounded strongly by more than 60%, and the price of cobalt hydroxide, the main export of the Democratic Republic of Congo, has risen by more than 1.5 times.
ARECOMS Chairman Patrick Luabeya stated that the current market situation "no longer requires a comprehensive suspension of exports". He explicitly stated that the goal of the new quota system is to reduce global cobalt inventories to a level equivalent to approximately one month's demand. We clearly hope that cobalt prices can return to a level that not only ensures the survival of the industry, but also ensures the sustainable development of this key energy transition industry, "Luabeya emphasized. This move is widely interpreted as a strategic action by the Democratic Republic of Congo aimed at consolidating its market pricing power and pursuing long-term benefits.

The profound impact on the global supply chain and institutional perspectives
This policy will undoubtedly become a key variable for global electric vehicle manufacturers, battery producers, and commodity traders to evaluate their costs and supply chain strategies.
According to analysis by CITIC Securities, this quota policy will lead to a sustained shortage of global cobalt supply from 2025 to 2027, with expected shortages of 122000 tons, 88000 tons, and 97000 tons respectively, thereby driving up cobalt prices strongly. They expect that companies laying out cobalt smelting in Indonesia and enterprises with mines in the Democratic Republic of Congo will benefit from this.
Morgan Stanley also released a report stating that this move will have a significant impact on global cobalt supply, and specifically pointed out that it is optimistic about companies such as Luoyang Molybdenum (03993. HK) that have important businesses in the local area, and maintains its "increase in holdings" rating.

Potential risks and long-term challenges
However, analysts have also warned of potential risks. Overly strict supply control and sustained high prices may prompt battery manufacturers to accelerate research and development and shift towards cobalt free or low cobalt battery technologies, such as lithium iron phosphate batteries. In the long run, this may actually weaken the strategic importance of cobalt resources in the Democratic Republic of Congo.

The cobalt export quota system in the Democratic Republic of Congo marks the country's transformation from a mere resource exporting country to a strategic resource manager attempting to control the international market discourse. This measure is expected to support cobalt prices in the short term and bring a new pattern to the global cobalt industry. However, whether its long-term effects can maintain market balance and sustainable industry development as the government wishes still needs to be tested by the market and depends on the response to the evolution of global technological routes.