Cobalt is a key ingredient in lithium ion batteries - used to extend their life. It is also used as a super alloy, for example, in jet engines and wind turbines. It also has applications in defense industries.
But lithium ion is the sexy end of this market. Its use within batteries has grown 7.5 per cent a year for the last half a decade and this application now accounts for 42 per cent of global cobalt consumption.
The IEA recently projected that there will be 125 million electric vehicles on the road by 2030, from 3.1 million today. That sounds like a lot of cars, but in fact, by this estimate, electric vehicles will still account for less than 10 per cent of all cars in use. But the IEA does say that this total number of electric vehicles could hit 220 million, if the world takes a more aggressive approach to fighting climate change.
Greater potential than that
These projections for electric vehicles are well known. The markets understand the potential for cobalt, and to an extent this is priced in.
But only to an extent. If there are indeed 100 million plus electric vehicles on the road by the end of the next decade, an awful lot of cobalt will have to be mined.
It is just that I happen to think that the markets are underestimating this one. Policies geared towards fighting climate change will indeed become more aggressive - with the reality of ever more serious forest fires every year, and heat related deaths escalating.
Right now, electric cars are expensive. I am guessing that if you drive around 100 miles a day to work, then an electric car’s cost, after taking into account running costs, will be mildly cost beneficial. But the cost of lithium ion batteries per kilowatt hour have fallen by 80 per cent over the last ten years. As the cost of electricity generated from renewables falls, as the cost of lithium ion batteries continue to fall, electric cars, which are easier to maintain than internal combustion engine cars as they have less moving parts, will offer overwhelming advantages. Buying an electric vehicle will be a no brainer.
The biggest challenge facing the industry will relate to meeting demand. The prospects for cobalt are good.
Of course, while the long run trajectory should be up, there will be periods when the price falls. Such periods may well present buying opportunities. The price of cobalt has fallen sharply since early spring, thanks to a lithium ion battery capacity surplus emanating from China. This is an inevitable part of a growing market, glitches will set in, from time to time.
How to invest?
You can invest in cobalt in four ways: invest in the metal via the futures market - although gamble, rather than invest, might be a better word to use. You can invest in cobalt miners (cobalt is in fact a bi-product of nickel and copper.) You can invest in a local region where cobalt is in plentiful supply. Or you can invest in cobalt refinery.
I quite like the last two options above, but investing in a region is fraught with difficulties, especially when you consider that the Democratic Republic of Congo is the area where cobalt is most commonly mined. There are all kinds of issues with this region, including risks related to civil war and human rights violations.
Companies to look at
Glencore has been investing heavily into cobalt, in addition to being one of the world’s leading producers of cobalt, it is one of the largest recyclers and processors of cobalt-bearing materials, such as used batteries. I like the sound of that.
Another company which keeps coming up is Freeport-McMoRan Inc, a US listed company, but the share price has not performed well in recent years.
A Belgium based and listed company called Umicore describes itself as a worldwide leader in the recycling, refining, transformation and marketing of cobalt and nickel specialty chemicals. Shares are up 250 per cent over the last five years and by a third over the last 12 months.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees