Investment Rating - Industry Rating: Outperform the Market (maintained rating) [7] Core Viewpoints - The recent quota policy from the Democratic Republic of the Congo (DRC) has set a total quota of 96,600 tons, with a base quota remaining unchanged at 87,000 tons. Major companies receiving quotas include Luoyang Molybdenum (36% share), Glencore (22% share), and Eurasian Resources (12% share) [2][3] - The quota distribution aligns with expectations, although the local DRC company EGC received a quota despite minimal past exports, likely due to local policy support. The introduction of a 10% royalty fee on cobalt sales will significantly increase local revenue [3][4] Summary by Sections Quota Distribution - The quota distribution is based on historical export volumes from January 1, 2022, to December 31, 2024. The current quota aligns with expectations, with the DRC's local company EGC receiving a quota despite limited past exports [3] - The total quota of 96,600 tons represents a 56% decrease compared to last year's exports of nearly 220,000 tons, indicating a tightening supply-demand balance [4] Market Outlook - The current inventory situation is critical, with an estimated four months of inventory across the supply chain. This could lead to increased supply tension if any segment of the chain holds excess stock [4] - As of October 13, prices for cobalt sulfate, lithium cobalt oxide, and battery-grade cobalt have increased by 40%, 38%, and 29% respectively from September 22 to October 13, indicating strong downstream demand [4] Investment Recommendations - Short-term expectations include continued inventory depletion and potential price increases due to low inventory levels. The long-term logic suggests a direct supply-demand balance or even a shortage, leading to an upward adjustment in cobalt prices [5] - Companies not significantly affected by DRC policies, such as Huayou Cobalt and Likin Resources, as well as Luoyang Molybdenum, which has now clarified its quota status, are recommended for investment [5]

Core Viewpoint - The Democratic Republic of Congo (DRC) has extended its cobalt export ban until October 15, 2025, transitioning to a quota system thereafter, which is expected to impact global cobalt supply and prices significantly [4][6]. Group 1: Cobalt Export Regulations - The DRC's cobalt export ban will now be followed by a quota system starting October 16, 2025, allowing exports of 3,625 tons in October, increasing to 7,250 tons in November and December, and a total of 96,600 tons from 2026 to 2027 [4]. - Export quotas will be allocated based on historical export volumes of each company [4]. Group 2: Global Cobalt Production and Market Impact - In 2024, the DRC is projected to account for 76.3% of global cobalt production, with an estimated output of 220,000 tons, while Indonesia and Russia will contribute significantly less at 28,000 tons and 8,700 tons, respectively [5]. - The DRC's previous export bans were a response to plummeting cobalt prices, which fell to historical lows earlier in 2025, indicating a potential for price recovery due to supply constraints [6]. Group 3: Supply-Demand Dynamics - The DRC's export suspension from February 22 to October 15, 2025, is expected to reduce global cobalt supply by approximately 141,600 tons, leading to a projected annual shortfall of 30,000 tons from 2026 to 2027 if demand remains stable [7]. - China's cobalt raw material imports saw a dramatic decline in August 2025, with a 90% year-on-year drop, indicating a tightening supply situation that may continue as inventory levels decrease [8][9].

Summary of Cobalt Industry Conference Call Industry Overview - The conference focused on the cobalt industry, particularly the impact of the Democratic Republic of the Congo (DRC) extending its cobalt export ban for an additional three months starting June 22, 2025, to manage high cobalt inventory levels in China [1][2]. Key Points and Arguments - **Cobalt Price Dynamics**: The initial export ban led to a nearly 100% increase in cobalt raw material prices, rising from $5.6 per pound to over $12 per pound, while metal cobalt prices increased approximately 50%, from $10 to $15.2 per pound [2]. - **Impact on Chinese Companies**: Despite an increase in cobalt raw material imports in the four months prior to the ban, Chinese companies are expected to face raw material shortages post-July, potentially leading to production halts in small to medium enterprises and reduced capacity in larger firms [1][2]. - **Future Price Trends**: Cobalt prices are anticipated to experience two phases: short-term fluctuations due to DRC policies and potential price increases from late July to mid-August due to insufficient raw material inventories [4]. - **Supply and Demand Outlook**: Current supply growth outpaces demand growth, indicating that the fundamental supply-demand balance will not change significantly in the short term [4][5]. - **Inventory Levels**: The industry currently holds approximately 70,000 to 80,000 tons of inventory, with about 50% allocated to raw materials. If prices on the Wuxi electronic market rise to 240,000-250,000 RMB, profit-taking may occur, impacting project timelines [7][8]. Additional Important Insights - **Cobalt Export Quota**: The DRC's monthly export quota of 10,000 tons is deemed insufficient for maintaining supply-demand balance, with recommendations to increase it to 12,000-13,000 tons or supplement with Indonesian MHP [2][13]. - **Downstream Impact**: Rising prices of ternary materials will negatively affect downstream industries, particularly in low-nickel production, limiting growth potential in lower-end vehicle applications [12]. - **Future Production from Indonesia**: Indonesia's MHP production is projected to exceed 40,000 tons in 2025 and could reach 80,000-90,000 tons by 2027, which may help alleviate supply constraints [15]. - **Electric Vehicle Battery Costs**: The rising costs of cobalt resources may lead to increased production costs for electric vehicles, particularly affecting the adoption of ternary lithium batteries in mid to high-end vehicles [10][22]. Conclusion - The DRC's extended export ban on cobalt is a significant factor influencing the cobalt market, with potential implications for pricing, supply chain dynamics, and production capacities in China and beyond. The industry must navigate these challenges while adapting to changing market conditions and inventory levels.