Cobalt the super-metal is currently the hottest commodity on the market right now-and it’s NOT lithium. Instead… It’s a metal that early investors are eyeing as a massive opportunity. Moreover, supply is already in deficit – and that’s before the anticipated 500 percent increase in demand, reports James Burgess.
It’s a metal that is critical to the future stock price of everything from General Electric, Apple, Tesla, Amazon, UPS and many more. This development is all thanks to the supply crisis that is all about Cobalt.
But Apple has stopped buying cobalt in the Democratic Republic of Congo (DRC)–the main supply venue now–because of child labor. Apple is already the most widely followed stock because it’s got a rock-solid balance sheet and fantastic returns on invested capital. But look to the services business for future growth. Currently, more than half of the world’s supply of cobalt comes from the Democratic Republic of Congo (DRC). Use of child workers in appalling conditions in the DRC means that difficult supply chain questions are starting to be asked.
Very few investors actually know much about Cobalt, it is critical to the electric vehicle (EV) revolution because it makes up some 35% of the lithium-ion battery mix.
That’s 30% of batteries that are the backbone of EVs, EVs that are now mainstream. To meet demand for EVs, billion-dollar battery gigafactories have been built and continue to be built. Consumer electronics are contributing to the demand and resulting shortage of supply.
And, unlike lithium, which is a fairly common commodity… we can’t source enough of cobalt as things stand today – and demand is increasing quickly. Tesla has said cobalt supply is an even bigger problem than lithium; still, it’s hoping to source it all from America. Tesla overtook giant GM this year in market cap! And it looks like this isn’t just a fluke. Tesla’s going to maintain its momentum because they are the future.
Apple and Tesla will not be able to ignore the awkward questions they are being asked about their supply chains. Is their cobalt ethically sourced? Generally speaking, no. This is a huge and growing problem.
Analysts at Macquarie Research project deficits of 885 tons of this resource next year, 3,205 in 2019 and 5,340 in 2020. That’s a deficit increase of 503 percent.
As a first principle of investing, where there is a supply problem, there is a massive opportunity for early investors.
GE is developing jet engines, for which is needs cobalt. And one of the biggest headlining catalysts may be the potential for GE to take on billionaire Robert Bass’s dream to build a private supersonic jet through Aerion Corp. This would be the first non-military plane to fly faster than the speed of sound since the failed Concorde.
Amazon needs it for Kindle; and UPS will need it for its fuel cell tech investments. Right now, Amazon is on the edge of joining Wall Street’s exclusive “$1,000 Stock Club” as huge tech companies drive the U.S. market higher.
UPS hasn’t had a great year, but there is room for future growth, and investors are eyeing its fuel-cell transportation investments. The company did, however, beat revenue and earnings expectations for the first quarter of this year.
However, the run on physical cobalt started in February in the least expected corner: Major hedge funds started buying up physical cobalt and hoarding it in order to gain exposure to the major supply shortage.
Swiss-based Pala Investments and China’s Shanghai Chaos have already hoarded 17 percent of last year’s global production. At today’s prices that’s worth around $280 million. At tomorrow’s prices, it will be worth a lot more.
When hedge funds start stockpiling physical cobalt, it sends its traditional buyers into a panic to secure new shipments.