There’s Only One Reason That Explains Why Chinese Companies Are Pumping Out so Much Cobalt: Politics

Chinese mining giant CMOC Group, or China Molybdenum, announced this week that it reached its full-year cobalt production target three months ahead of schedule. This would probably have been welcomed as good news in an earlier era. But in today’s market, when the price of the blue metal is at an eight-year low, CMOC’s strategy to surge output is financially baffling.

The company said in its third-quarter earnings report that it produced 84,722 tons of cobalt from its African operations through September 2024, up 127% from the same period last year and well above the 60,000-70,000 ton guidance it previously forecasted for the entire year.

What’s notable, though, is that this year’s production surge isn’t an isolated phenomenon. Last year, CMOC increased output from its cobalt mines in the DR Congo, namely the Tenke Fungurume mine (TFM), by a stunning 174% compared to what it produced in 2022. That jump in production propelled the Henan-based company past Glencore to become the world’s largest cobalt supplier.

But CMOC is flooding the market with cobalt precisely at a time when demand for the metal, which is used to manufacture electric vehicle batteries, is down and showing no signs that it’s going to pick up anytime soon. Cobalt is one of the key inputs used in so-called “NCM” or nickel/cobalt/manganese batteries that were once very popular in EVs produced by Tesla, Ford, and BYD, among numerous other brands.

Up until this year, NCM batteries generated more power and remained cooler than other kinds of EV batteries like LFPs (lithium phosphate) and sodium ion power packs — neither of which use cobalt. Now, though, Chinese battery makers have closed the power gap between NCMs and LFPs with the introduction of new lithium phosphate batteries that can deliver a 1,000km range on a single charge.

Cobalt prices also suffered when EV sales slowed considerably in China, the U.S., and Europe in response to economic uncertainty in those regions along with the expiration of some tax benefits.

Normally, with other commodities like oil, when prices fall, producers try their best to push prices up by constraining supply — something CMOC is clearly not doing with its Congolese cobalt production.

So, why are they producing so much?

The unsatisfying answer is that no one’s really sure. Neither CMOC nor anyone close to the company has provided any insights into the rationale of producing so much cobalt that’s generating so little profit.

The only other explanation, then, is that CMOC’s strategy is unrelated to pricing conditions and more about keeping Western rivals on the sidelines. Since Western mining companies, unlike so many of their Chinese counterparts, do not benefit from government subsidies, they simply can’t justify the cost of entering a market like cobalt when the prices have been depressed for a prolonged period and show no signs of rebounding any time soon.

Now, is CMOC acting at the behest of the Chinese government or its corporate interest? Again, we just don’t know.

Whatever the reason, though, CMOC’s behavior gives China an unrivaled advantage over its rivals in the U.S., Europe, and Asia that are moving aggressively to cut Chinese firms out of their supply chains — which, at least for cobalt, is not going to be possible for a very long time.