Electric car boom spurs investor scramble for cobalt

Tue Feb 14, 2017 9:33am EST
 
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By Pratima Desai

LONDON (Reuters) - Investors are buying up physical cobalt anticipating that shortages of the metal, a key component of lithium-ion batteries used in electrical cars, will spur prices to their highest levels since the 2008 financial crisis.

Prices for cobalt metal have climbed nearly 50 percent since September to five-year peaks around $19 a lb as stricter emissions controls boost demand for electric vehicles, especially in China, struggling with ruinous pollution levels in some cities. (For a graphic on how Lithium-ion battery works click tmsnrt.rs/2kOUBNQ)

Consultants CRU Group say electric car and plug-in hybrid vehicle sales could hit 4.4 million in 2021 and more than six million by 2025, from 1.1 million last year.

By 2020, 75 percent of lithium-ion batteries will contain cobalt, whose properties allow electric cars to extend their range between charges, according to eCobalt Solutions, which produces battery grade cobalt salts.

Some 98 percent of cobalt is produced as a by-product of copper and nickel output, so for investors pure equity exposure to cobalt is tricky.

"Cobalt isn't going to massively impact share prices. The funds looked at LME (London Metal Exchange) cobalt contracts, but they aren't liquid enough for the millions they want to invest," a Europe-based cobalt trader said.

"So they are buying cobalt with the intention of sitting on it until prices rise, looking for $25 (a lb) or more."

Swiss-based Pala Investments, a fund focused on the mining sector, and Shanghai Chaos Investment, one of China's largest commodities funds, bought cobalt last year, industry sources familiar with the matter said, declining to specify amounts.   Continued...

 
Excavators and drillers at work in an open pit at Tenke Fungurume, a copper and cobalt mine northwest of Lubumbashi, Democratic Republic of the Congo, January 29, 2013.  REUTERS/Jonny Hogg/File Photo