U.S. Defense Department Initiates $500 Million Cobalt Procurement to Bolster Strategic Reserves

U.S. DoD to Procure Cobalt for Strategic Reserves

The U.S. Defense Department has initiated a significant procurement drive, announcing plans to purchase up to $500 million worth of cobalt over a five-year period. This marks the first such acquisition since 1990 by the Defense Logistics Agency (DLA), underscoring a renewed focus on national security and supply chain resilience for critical minerals. The tender seeks up to 7,500 tons of alloy-grade cobalt, a hard, heat-resistant metal crucial for super-alloys used in jet-engine blades, armor-piercing munitions, and high-strength magnets within landing-gear systems.

This move is a direct response to increasing geopolitical concerns regarding the security of critical mineral supplies, particularly given China's substantial control over refining capacity for many essential materials. The DLA's specification explicitly excludes feedstock from China, reflecting a deliberate strategy to reduce reliance on Chinese-dominated processing.

Market Dynamics and Supply Chain Resilience

The re-entry of the U.S. Defense Department into the cobalt market is poised to have a material impact on global supply dynamics. The DLA's intended procurement volume could absorb approximately one-sixth of the global non-Chinese output of alloy-grade cobalt, potentially tightening supply for aerospace and defense manufacturers. This anticipated demand has already influenced market sentiment, with alloy-grade prices having risen 42% this year, partially due to an export ban from the Democratic Republic of Congo (DRC) earlier in the year.

The procurement initiative is bolstered by new authority granted under the 2024 National Defense Authorization Act, which provides the DLA with $1 billion annually and permits long-term contracts without case-by-case congressional approval. This is part of a broader U.S. government push, with the DLA deploying $2 billion in spending power for critical mineral tenders, including niobium, graphite, and antimony, since late July.

Key Players and Market Implications

The tender for cobalt explicitly targets a limited number of global suppliers, including units of Vale SA (Canada), Sumitomo Metal Mining (Japan), and Glencore Nikkelverk (Norway). These companies are positioned to become key beneficiaries of the increased demand. While specific financial impacts for these entities directly tied to this tender are yet to be fully realized, the strategic importance of their cobalt operations is significantly elevated.

“With only a handful of qualifying smelters, meeting 7,500 t will be challenging,” a London-based metal broker commented, predicting premiums for aerospace-quality units.

The broader context reveals a global shift towards securing critical mineral supply chains. The DRC's recent decision to resume cobalt exports with strict quotas (capping annual exports at 96,600 tons) further complicates the market, potentially pushing Chinese buyers into long-term bilateral deals and affecting the liquidity of the global spot market. Companies like Glencore, with diversified operations, appear less exposed to the DRC's quota system compared to single-metal producers.

Future Outlook and Geopolitical Landscape

Looking ahead, the U.S. Defense Department's cobalt procurement is a clear signal of a long-term commitment to bolstering strategic reserves and diversifying supply sources. This initiative aligns with the Biden administration's broader strategy to enhance energy, defense, and manufacturing resilience amidst geopolitical risks, exemplified by the pursuit of a $5 billion investment fund for critical minerals projects and previous investments in U.S. rare-earths producer MP Materials.

While demand for cobalt is expected to remain robust, driven primarily by electric vehicle (EV) production, the increasing adoption of lithium-iron-phosphate (LFP) batteries, which use little to no cobalt, could temper demand growth in certain segments, particularly in China. Despite these shifts, analysts forecast the global cobalt market to transition from a surplus to a deficit by 2027, with strong demand projected to outstrip supply in the mid to late 2020s.

The strategic implications extend beyond direct procurement, potentially accelerating critical minerals projects, redirecting investment capital, developing processing capacity outside China, and enhancing environmental and governance standards across the industry. The ongoing geopolitical realignment, coupled with technological demands, ensures the critical minerals sector, and particularly cobalt, will remain a focal point for investment and strategic planning in the coming years.