Tenke Fungurume, a copper and cobalt mine northwest of Lubumbashi, Democratic Republic of the Congo
PRICES for cobalt, lithium and a host of other lesser known metals have surged in recent months, driven by growing global demand for electric vehicles. Unless you’re a miner, metals trading firm or auto maker, you probably won’t be able to get your hands on any.
The metals are key components in electric car batteries, and demand is expected to explode in the next decade. Of course, plenty could change between now and then — while most investors and analysts agree that demand for electric cars will rise, no one can say with certainty what the batteries used in those vehicles will be made of in 10 years time.
For now, most lithium and cobalt changes hands between a handful of specialized trading houses, producers and consumers. The London Metal Exchange recently said it is planning to launch futures contracts for lithium and cobalt sulfate as early as the start of 2019. Considering the price of both metals has doubled in the last two years, that may be longer than some investors want to wait.
The current LME cobalt contract, launched in 2010, is for physically settled refined metal — used as a component in making jet engines.
One particularly bullish investor purchased more than a thousand metric tons of physical cobalt and stored it in a warehouse. Investors of more modest means can buy exchange traded funds such as The Global X Lithium & Battery Tech, an ETF that holds shares of lithium miners, as well as electric car maker Tesla The fund’s shares are up around 57% this year, compared to a nearly 52% rise in the stock of specialty chemical company Albemarle, its biggest holding.
Glencore is the world’s largest cobalt miner, although it is also a major producer of coal, copper and zinc. Purer plays can be found in smaller companies, most of which seek to mine the metal in Canada and Australia rather than the Democratic Republic of the Congo, where the lion’s share of the world’s cobalt is found. The stock prices of companies such as First Cobalt and eCobalt Solutions have soared this year, although their small market capitalization would make them undesirable for many investors.
You could, of course, take a position in one of the better known and more easily acquirable metals, which are used much more heavily in electric cars than ordinary ones. But metals like copper, nickel and aluminum are so widely used and mined that they can rise and fall for wide variety of reasons, from Chinese industrial demand to mining strikes in Chile, Indonesia and other countries where the metals are produced.
Whatever you buy, you better have a stomach for volatility. A demonstration of how enthusiasm for electric vehicles can spur volatility in metals prices came in November. Prices for nickel rose around 22% in a little over four weeks, reaching a peak on Nov. 6, a few days after a widely attended London Metal Exchange gathering where speakers touted how electric vehicles will spur demand for the metal.
Edward Meir, a strategist at INTL FCStone, attended the event but is skeptical that price rise was justified. “It was hype,” he said. “There’s plenty of nickel out there.”
Prices have fallen around 15% since then, although they are still up on the year. - WSJ
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