LONDON (Reuters) - The U.S. looked into buying cobalt for defence stockpiles last year, three sources with knowledge of the matter said, adding the Defense Logistics Agency (DLA) could consider purchases in future despite deciding against them in its latest plan.

Any increase in cobalt holdings would be aimed at reducing reliance on China, which dominates the processing of the material used to make missiles, aerospace parts, magnets for communication, and radar and guidance systems.

Cobalt is also used to make the batteries that power electric vehicles, a key plank of the energy transition.

The DLA's stockpiling plans which run from October 2023 to September 2024 did not include cobalt, surprising the market, which had expected the 60% price drop to around $16 a lb since May 2022 to incentivise purchases.

DLA spokesperson Joe Yoswa said: "DLA ... conducts critical material supply chain assessments biennially to determine NDS (National Defense Stockpiles) requirements. Cobalt is not currently presenting as a vulnerability requiring stockpiling."

"Should that change in the future, DLA will reassess and make an appropriate recommendation on stockpiling to the Undersecretary of Defense for Acquisition and Sustainment."

Yoswa added the NDS is "for defense purposes and is not an economic stockpile" and that "the current price of a commodity cannot be used as justification to acquire materials".

The unfavourable price backdrop prompted cobalt and nickel supplier Jervois Global ( JRVMF ) to suspend final construction of its Idaho cobalt operations in March last year, which would have been the only primary cobalt mine in the United States. It was expected to produce 2,000 metric tons a year.

Prices are likely to remain depressed due to slowing sales of electric vehicles which use cobalt-containing batteries, and new battery chemistries that don't use it.

The sources said some of the impetus for the move to assess cobalt came from a letter sent by Congress in September 2022 to the Department of Defense (DoD) asking it "to direct" DLA "to prioritize the acquisition of domestically refined cobalt".

The letter signed by lawmakers Byron Donalds, Don Bacon, Eric A. "Rick" Crawford, Kevin Hern and Markwayne Mullin cited "a heavy dependence on other countries' refined cobalt, particularly China" as a reason to add to U.S. stockpiles.

Spokespeople confirmed Mullin and Donalds signed the letter, while those for Crawford and Hern did not respond to requests for comment.

"As indicated in his 2022 letter to Under Secretary of Defense (William) La Plante, Congressman Bacon believes the Department should move aggressively to secure domestic sources of critical minerals including cobalt," a spokesperson for Bacon said.

Most of the cobalt mined in Congo, amounting to 77% of global supplies or more than 170,000 tons last year, according to Darton Commodities, was exported to China for processing into metal or chemicals for batteries.

The NDS "lacks sufficient cobalt reserves, endangering America's critical mineral supply chain", the letter said, adding that: "From approximately 13,000 tons during the Cold War, cobalt in the Stockpile is now estimated at 333 tons".

"In practical terms, the total cobalt stockpile is only 5 percent of annual U.S. consumption."

Yoswa declined to comment on how much cobalt DLA has in its stockpiles. "The National Defense Stockpile does hold 99.8% pure cobalt, but we won't provide the amount that we hold for security purposes," he said.