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“Next year is going to be far tougher for everyone than anything we’re seeing now.”

Cobalt fall reflects slowdown in China

Industrial activity in China has slowed so quickly that demand for cobalt has ground to a halt, according to one of the biggest cobalt miners in the Democratic Republic of Congo, the world’s largest source of the metal.

Camec, the London-listed junior miner, last week mothballed its Mukondo mine, one of the world’s richest cobalt mines, saying it might resume production in early 2009 if prices recover. “It is almost as if there is a buyers’ strike,” said Andrew Groves, chief executive of Camec, referring to Chinese buyers who were buying record quantities of the metal six months ago and sending it to China’s factories to be processed into batteries, propeller blades, magnets and chemicals, among a range of applications so varied that cobalt demand can be seen as a rough proxy of industrial activity.

Cobalt, mined mainly in Congo, has so many uses that demand for it is seen as a proxy of global industrial activity

Economists are scrutinising China’s downturn to gauge the extent of a possible global recession but official statistics do not yet paint a clear picture. The cobalt market’s collapse offers one indication. The market has two poles – Congo and China. Cobalt is mostly mined in Congo’s Katanga province and 64 per cent was processed in China in 2007.

The freezing effect of the end market on the source market was further confirmed last week when Katanga Mining, a copper-cobalt miner in Congo, suspended its cobalt operations. Like Camec, it will meet reduced demand by selling from current stocks.

Mr Groves described Camec’s cobalt mine as only one victim in a global production chain that is seizing up. Companies such as Samsung have cut production of mobile phones in China, he said, causing a “massive drop-off” in orders for phone batteries that use lithium cobalt oxide, in turn halting metal orders from Chinese buyers in Congo.

Cobalt stockpiles are building up in China and further depressing the price, he said. Trading in cobalt concentrate is opaque but, according to Reuters, the import price in eastern China fell 16 per cent in the week to November 14 and has halved since March. In the week to November 21 it plunged further to about $12 per pound, Metal Bulletin reported.

The cobalt price’s collapse is in line with other industrial metals such as aluminium, zinc, nickel and copper. Miners of these metals daily face crises similar to Camec’s and mothballing mines around the world to save cash as they wait for a price recovery.

A crash in Congo’s cobalt and copper mining industry, however, has as many political as commercial implications. The extraordinarily high grades of copper and cobalt ore in Katanga province have attracted scores of foreign mining companies.

Mining revenues help fund the Kinshasa government, which faces an escalating insurgency in the east of the country. The award of mining licences has been a key negotiating chip in attracting investors to the country and extracting a higher cut of their profits.

Drawn by Congo’s abundance of industrial metals, China was the newest and potentially largest of the country’s foreign investors. In January, the Chinese government signed a resources deal with Kinshasa, valued then at $9bn (€7bn, £6bn), that would grant Chinese companies rights to vast quantities of copper and cobalt in exchange for infrastructure.

But the future of the deal is uncertain in the low-price commodity environment. Also uncertain is the viability of established foreign mining companies in Congo such as Camec.

Shares in these mostly junior miners have “taken a Stuka dive out of the clear skies of the commodities boom”, as a South African mining commentator put it. Camec has fallen 95 per cent to 2.50p over the past six months and First Quantum Minerals has fallen 82 per cent in the same period, while Katanga Mining has fallen 97 per cent.

Camec’s suspension of copper and cobalt mining, Mr Groves said, was simply a prudent business decision. The company would run a scaled-down operation centred on a trucking business that is doing work for the World Food Programme. The Mukondo mine would restart within a week after Camec determines prices have recovered.

“We are monitoring on a weekly basis demand from China,” he said. “Early next year seems like a good guess of when we’ll see demand recovering.” But he cautioned, “Next year is going to be far tougher for everyone than anything we’re seeing now.”

de Ft de hoy