Half a dozen hedge funds bought about 6,000 tonnes of nickel and copper cobalt ($ 280 million) in order to anticipate the increase in demand due to the boom it has experienced, and are expected to follow in its upward trajectory the electric vehicle industry. The total purchase is the equivalent of 17% in last year’s cobalt production. It is that the increase of the use of the batteries for the electric vehicle has been a truly fertile context for the speculators to take advantage of the price inflation.
These alternative management funds predict that the demand for electric vehicles will exceed market expectations which will eventually lead to the price of the commodity to rise because the manufacturers of batteries such as Panasonic Which produce Tesla battery cells need to be insured in cobalt supplies.
The Chassis of Tesla Model S
Global demand for cobalt last year was about 100,000 tonnes of which about half were used for electric car batteries. In other uses, we have mobile phones, laptops, digital cameras, and wireless drills.
After seven years of overcapacity in the cobalt market, a deficit will be reached during this year, aggravated by an unsafe supply chain. More than 50% of the world’s cobalt is in the Democratic Republic of the Congo implying a high political risk. Many investment funds have been hogging cobalt most of them purchased this basic material when the price was around $ 10 per pound in December 2015.
Expectations about cobalt are positive. As a result strengthens its control over Congo’s copper and cobalt resources through the purchase of several mine shares worth $ 960 million , with the potential to become the world’s largest cobalt producer. For this year, those who have hogged cobalt and therefore, hold positive expectations about their price could hit. According to the consulting firm CRU commodity it is expected that global demand for cobalt exceeds supply by 900 tonnes in 2017 leading to a rise in price.
More immediate consequences
The price of cobalt has risen nearly 50% since September last year and 132% from early 2016 to the current $ 24 per pound. The catalyst for this rise has been the increase in tighter emission controls that drive the demand for electric vehicles, especially in China which is struggling against high levels of pollution in some of its cities.
China is critical for both the short, medium and long-term outlook. Batteries that do not use cobalt currently dominate the country’s market but manufacturers are switching to lithium-ion batteries that are based on cobalt because they offer greater power capacity. If we add to it the cobalt accumulation, in principle, the availability of cobalt would be reduced and prices should move upwards.
As a result, an increase in cobalt represents bad news for automakers, especially for Tesla or other manufacturers like General Motors and Ford because in these three giants are in a process of development in new models of electric vehicles . Recall that the battery is about 50% of the price of electric vehicles.