The availability of cobalt, a key battery material used to power electric autos, has become more scarce after a group of hedge funds bought up the equivalent of 17% of last year’s global production of the precious metal, the Financial Times reports.
Why Is Demand for Cobalt Rising?
According to the report, half a dozen funds purchased an estimate 6,000 tons of cobalt because they believe that demand, half of which comes from the electric vehicle industry, is destined to soar. This big investment means that the price of cobalt, which has already risen more than 50% since November to $21 per pound, has increased even more and is hard to come by for the various companies that use the metal to boost the power of lithium-ion batteries.
Industry insiders believe this trend of price increases is likely to continue. Commodity consultancy CRU claims that global demand for cobalt is expected to outstrip supply in 2017 by 900 tons, and grow by 20% in each of the next five years.
Cobalt Shortages Bad News for Electric Autos
One of the main reasons for this surge in demand is the growing number of electric and hybrid cars being produced. Now that hedge funds are getting in on the action, the availability of this already scarce metal, which is mainly used to improve battery stability and capacity, has plummeted even further.
That represents bad news for auto manufacturers such as Tesla (TSLA), General Motors (GM) and Ford (F), particularly as all three are currently in the process of developing new models. The companies that provide them with batteries, including Johnson Controls (JCI) and Japan-listed electronics giant Panasonic, are also likely to find that the scarce availability of cobalt will eat into their profits. (See also: What is the best way to get exposure to electric cars when investing in the automotive sector?)
How to Invest in Cobalt?
Investors keen to capitalize on this rise in demand for cobalt, which is also used in industrial and military applications such as catalysts, pigments and supper alloys, should check out the mining sector. The likes of PolyMet Mining (PLM) and Freeport-McMoRan (FCX) dedicate at least some of their resources to mining cobalt and, therefore, should benefit from rising demand. (See also: Lithium Ion Battery Stocks.)