Cobalt mining firms in the Democratic Republic of Congo (DRC) may need to adjust their operations in the coming months in response to falling copper and cobalt prices, logistical challenges and delays in securing raw materials.
Prices for cobalt hydroxide have fallen sharply since the beginning of this year, assessed at $7.90-8.40/lb cif China on 25 April compared with a midpoint of $10.70/lb at the start of January. Lacklustre demand from China's battery chemical industry has weighed heavily on hydroxide prices, which peaked at a multi-year high of $32.50-32.80/lb cif on 12 April 2022. The price drop since then may reduce demand for raw materials, such as sulphur.
"It depends from mine-to-mine, but the larger ones are probably comfortable until the mid $7s/lb — then it starts becoming an issue, especially with higher sulphur costs," one trader said.
Prices for granular sulphur — which mining firms import so that they can produce sulphuric acid for use in the metal smelting process — have actually dropped globally since the start of this year, with sub-Saharan Africa delivered prices at $125/t cfr on 20 April, down from highs of $140-150/t cfr in January. The drop has been driven by weak demand from fertiliser buyers, with the metals industry typically accounting for less than 10pc of global sulphur consumption.
But buyers in sub-Saharan Africa need to factor in additional charges attached to their sulphur purchases such as demurrage costs, which have risen at the region's main ports, of which Richards Bay, Walvis Bay and Beira are most commonly used for sulphur deliveries.
Port congestion is a regular challenge, partly owing to increased vessel loadings, with coal, cobalt and copper all popular exports. Delays are particularly lengthy at South Africa's Richards Bay, where discharging rates have slowed after a conveyor fire last year, and material is often manually discharged and loaded.
Demurrage costs for companies importing sulphur through Beira port in Mozambique are currently high. Beira is a smaller tidal port, which causes some additional logistical challenges, and vessel loadings have been increasing. Loading and discharging is understood to have taken up to 21 days for some vessels at a high demurrage cost of $17-18/t, adding to delivered costs for sulphur buyers.
Trucking hard to come by
Mining firms in the Kolwezi and Lubumbashi areas have warned about the build-up of congestion on the roads and border crossings between the DRC and Zambia for months, but the potential restart of exports from the Tenke Fungurume (TFM) mine is expected to exacerbate the problem.
One mining firm said it was taking around 70 days to reach Durban from Kolwezi, the main transit route for cobalt hydroxide out of the DRC.
"I don't think TFM are exporting just yet, there's still some paperwork to finalise, but the assumption is that it will be lifted soon," said one trader familiar with the situation. "We hear logistics have slowed right now. Kamoa is sucking up a lot of trucks, and the border queues are long again."
The Kamoa-Kakula copper mine produces around 7.6mn t/yr of ore, with around 200,000 t/yr of copper contained, truck shipments of which have clogged up roads even without TFM's exports. TFM restarting would add 184,000 t/yr of contained copper into that market, plus ore that has been mined and not exported during the period since June 2022.
But the truck congestion is unlikely to lead to a sulphur shortage as the TFM mine has large sulphur storage facilities that are almost full because the mine has continued buying small volumes of sulphur, despite not producing or exporting any copper so far this year. Sulphur demand from mines in the DRC will continue to be fairly firm, sulphur market participants have said.
Falling copper prices weigh on mines
Falling copper prices are expected to provoke a reaction in the DRC if they continue to drop, as copper is the country's main source of income, with cobalt usually a profitable by-product.
"If we slump below $8,000/t a lot of the smaller guys will feel the pain," one analyst from a large DRC mining firm said. "The mines with high cobalt grades will be the first to go."
Copper prices have been declining steadily for over a week, with the three-month contract on the London Metal Exchange falling to a one-month low of $8,778/t in today's official session. On-warrant tonnage on the exchange have been augmenting over the week, with stocks reaching 57,025t today, the highest since January.
Low demand in China has underwhelmed the copper market, pulling prices down. But a resurgence in Chinese demand remains a possibility and on-warrant tonnage, although rising recently, is lower than historical levels — stocks today are 15pc lower compared with early December. And production by some of the large copper mining companies slumped in the first quarter of this year, with Rio Tinto reducing its output guidance for 2023 by 60,000-70,000t to 590,000-640,000t.
There has already been a reaction in the artisanal cobalt sector, often the most reactive to price movements, according to some market participants.
"I think most small operations based on artisanal feed are closed or closing. In terms of cobalt, this more than offsets any increase in Indonesian output this year," one European trader said.
