* Cobalt prices rebound off lows, weaker H2 seen

* Madagascar's Ambatovy shipment delay seen as temporary

* Large stocks of cobalt feed accumulate in China

By Harpreet Bhal

LONDON, Feb 26 (Reuters) - A surge in supply is likely to put cobalt prices under pressure in the second half of this year, wiping out recent gains in the minor metal used in rechargeable batteries, traders said.

Prices for cobalt hit a low late last year as producers liquidated stock ahead of the holidays, but they have since begun to rally due to delayed shipments from Madagascar's Ambatovy mine and a pick-up in buying activity in the new year.

The bottleneck affecting Ambatovy is seen as part of temporary teething troubles and traders expect a surge in supply to push prices lower by the second half of the year.

Ambatovy, a nickel and cobalt project operated by Toronto's Sherritt International began cobalt shipments late last year and expects to produce 5,600 tonnes of refined cobalt per annum, the company said on its website. This will make it one of the world's largest cobalt operations.

This project, along with the opening of Highland Pacific's Ramu nickel/cobalt operation in Papua New Guinea and a ramp-up in supply from Freeport-McMoRan Copper & Gold's Tenke Fungurume in the Democratic Republic of Congo is expected to keep cobalt prices weak in coming months.

"We expect by the second half of the year to see a surge in supply. Producers will have plenty of material come April/May to push prices lower," a London-based cobalt trader said.

"I would imagine that come summer there is a good chance that cobalt might be down in the $9-$10 bracket again."

Prices of high grade cobalt hit a low of around $10 a lb in late November, rising by roughly 20 percent to around $12 a lb last week.

As a by-product of copper and nickel mining, cobalt supplies are set to increase as long as the two metals remains profitable for miners.

"The producers are ramping up copper production and cobalt comes along for the ride" the trader said.

"If cobalt got to $6 a lb, they would scratch their heads and decide whether they should do something different. But when they're still getting a revenue of $10 or $12 a lb, it is still worth having."

World cobalt mine production in 2012 was an estimated 110,000 tonnes, according to the U.S. Geological Survey, which sees a continuing trend of higher production in the near-term due to mine expansion.

"In recent years, global cobalt production has been higher than consumption, resulting in a market surplus and downward pressure on prices," the U.S. Geological Survey said.

CHINA DEMAND UNCERTAINTY

Traders said that over years China has accumulated large stocks of cobalt feed, meaning it is unlikely to start importing large quantities of the metal in the near-term.

China is the world's largest producer of refined cobalt, through imports of feed and concentrates from sources including the Democratic Republic of Congo.

"It depends on the price but at the moment it does not look lucrative for them to keep buying," another trader said.

"Some companies (in China) have curtailed production due to the fact that buying concentrates at $10 and reselling metal at $12 doesn't make any commercial sense. So their business model has evaporated."

China's cobalt ore and concentrate imports dropped by 5.61 percent in January from a year earlier, official data showed this week.