METALS MARKETS — Cobalt dogged by supply problems

Produced as a co-product with copper and/or nickel, cobalt is experiencing increased supply problems. The metal has application in aerospace alloys, cutting tools, magnets, ceramics and chemicals. A vital non-ferrous industrial metal, cobalt has particular application in aircraft engine components, the production of which usually accounts for some 20% of consumption.

The Cobalt Development Institute (CDI) estimates 1991 western production at 19,500 tonnes. Estimated production from the eastern bloc adds another 5,000 to 6,000 tonnes of annual output.

In 1991, voters in Zambia peacefully ousted Kaunda’s United National Independence Party, which ruled since 1964, and replaced it with Chiluba’s Movement for Multiparty Democracy Party. The state-owned Zambian Consolidated Copper Mines, accounting for some 70% of Zambia’s foreign exchange earnings, is to be privatized. Several large mining houses are exploring several buy-in options.

Meanwhile Zambian annual production is holding at around 4,000 to 5,000 tonnes cobalt, or about 19% of total world production. The government estimates needed investment in the hundreds of millions of dollars to ensure the company’s long-term viability.

In Canada, about 15% of annual output is produced by Canadian nickel miners. Falconbridge Ltd. and Inco Ltd. refine from their own nickel/copper ores along with purchased feeds, and Sherritt Gordon, a custom refiner, purchases all of its feed.

At 6%, Outokumpu of Finland purchases most of its nickel/cobalt feed from overseas locations, particularly Australia, where the company has several nickel joint ventures.

Russian refined cobalt output, at 20% of total world output, is estimated to be 4,000 to 6,000 tonnes depending on mine production. (Cuban feed and toll-refining arrangements with Western dealers supply mainly African feed.) Falling consumer and military demand for cobalt in Russia, and tolling and inventory drawdowns, should allow these export levels to continue at least through 1993.

With the rising social problems (particularly currency inflation) throughout the CIS Republics, the capital investment needed to maintain large mining and refining complexes is virtually non-existent.

Western producers normally invest at least US$1 per pound of annual nickel production for maintenance of ore reserves and infrastructure. Based on experience in other countries beset with hyper-inflation, reductions of practical capacity in the order of 10% annually can be expected. In Zaire, state-owned Gecamines, producing 35% of output, is experiencing difficulties meeting production targets. Production levels have fallen steadily from almost 15,000 tonnes in 1986 to half that in 1992. Zaire is beset with problems. Mobutu Sese Seko has ruled as a dictator for 27 years and refuses to relinquish political control to a weak parliament. Widespread graft and corruption, a failed social infrastructure, hyper-inflation and a threatened civil war are added problems. The severe recession and resulting poor consumption, increased exports and custom tolling by Russia and, in 1993, the scheduled beginning of sales from the 24,000-tonne U.S. strategic stockpile, are keeping a lid on cobalt prices for now. Annual sales from the stockpile are expected to approximate drops in output resulting from production cutbacks in the nickel industry. For the future, supply disruptions and volatile prices are expected to continue until social conditions improve in central Africa.

— Jack Dupuis is a minerals marketing consultant based in Thornhill, Ont.