Suppliers to Tesla and other electric carmakers are scrambling to secure shipments of the key battery material cobalt after a group of hedge funds amassed a large stockpile of the scarce metal.
In a bold wager on higher prices, half a dozen funds, including Swiss-based Pala Investments and China’s Shanghai Chaos, have purchased and stored an estimated 6,000 tonnes of cobalt, worth as much as $280m, according to the investors, traders and analysts.
The stockpile is equivalent to 17 per cent of last year’s global production of the metal.
Increasing use of batteries containing chemical forms of the metal by Chinese electric carmakers, alongside ambitious plans by the likes of Elon Musk’s Tesla, have created a fertile backdrop for speculators hoping to profit from swelling appetite for cobalt, which boosts the power of lithium-ion batteries.
They are betting that demand for electric vehicles will exceed market expectations and push the up the price of cobalt as battery makers such as Panasonic, which makes battery cells for Tesla, rush to lock-up supplies of the material.
Global demand is already expected to outstrip supply this year by 900 tonnes, according to commodity consultancy CRU. It estimates demand for cobalt will grow 20 per cent a year for the next five years, thanks to buying from the hybrid and electric car industry whose production grew by 41 per cent last year.
The price of cobalt, which is mined almost exclusively in the Democratic Republic of Congo, has jumped more than 50 per cent since November to $21 a pound and could rise further. Prices rose to peak at about $50 a pound in 2007, before dropping to a low of $10 in 2015.
“There’s going to be bigger demand for cobalt,” Ivan Glasenberg, chief executive of Glencore, which controls almost a third of the cobalt market, said on Thursday. Each dollar rise in the price of cobalt generates about $55m in earnings for the company.
Tesla began production at its battery “gigafactory” in Nevada a month ago, sharpening its need for the metal, according to traders. Tesla did not respond to an email seeking comment. Pala Investments also declined to comment.
“End consumers worried about future price increases have been looking to fill their [stocks] and at the same time you’ve had some speculative buying from the hedge funds,” said Edward Spencer, an analyst at CRU.
With few pure cobalt companies listed outside China, hedge funds have been forced to buy physical metal to express their bullish view on the metal. Although the London Metal Exchange has a cobalt contract, it is not heavily traded.
“They quite rapidly decided that buying physical cobalt was the only way to get proper exposure to the cobalt price,” one trader said.
Still, traders warned the funds could have difficulties selling the metal for a profit, because the cobalt market is relatively small and release of new supply could quickly send prices lower.
About half of the annual consumption of cobalt comes from the electric vehicle industry. While carmakers have been trying to reduce the amount used, that has been difficult because of its ability to improve battery stability and capacity.
China is also helping to generate the bullish predictions for demand. While the country’s electric vehicle industry has in recent years relied on batteries without cobalt, carmakers have started to switch. Goldman Sachs analysts estimate China’s use of cobalt in electric batteries will almost double by 2025.
Cobalt’s price surge has led some battery makers to buy more cobalt in the spot market, further benefiting the funds that have stockpiled the metal.
“There’s a complete vacuum out there” in terms of supply, said Tony Southgate, a cobalt trader at Engelhart Commodities in London.
