Basic Problem in Cobalt Making It a Compelling Long-Term Opportunity
If you are looking for the next big trade, look no further. Pay attention to cobalt and cobalt-related investments. This silver-gray metal could generate immense returns for investors in the coming months and years.
Cobalt could soar because of one basic economic problem; we are going to need a lot of it, but the supply side is in deep trouble.
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You see, over the past few years, everyone has been talking about lithium batteries and how they have revolutionized electric cars. Tesla Inc (NASDAQ:TSLA) has proven that the lithium battery works.
But did you know that Tesla’s batteries can’t function without cobalt?
To give you some perspective, the Tesla’s “Model S” battery pack weighs around 453 kilograms (kg). Only 63kg of it is lithium. The rest is other materials. A lot of it is cobalt. (Source: “Breakdown of raw materials in Tesla’s batteries and possible bottlenecks,” Electrek, November 1, 2016.)
It’s very simple; if Tesla is going to produce a lot of batteries, it’s going to need a lot of cobalt as well, not just lithium.
Other Automakers Could Need a Lot of Cobalt, Too
Also, don’t get too fixated on Tesla alone. Look at other automakers as well. They all want to build electric cars that run on lithium batteries.
So, it’s very likely that they will need a lot of cobalt as well.
For example, consider Bayerische Motoren Werke AG (ETR:BMW). It says it could need 10 times more battery-making materials like lithium and cobalt by 2025.
Here’s the thing; BMW is already running into problems with supply.
Markus Duesmann, the purchasing executive at BMW said, “We’ve been intensively focusing on how to manage future cobalt supply for about a year now.” He added, “Before, it wasn’t clear just how quickly demand will accelerate.” (Source: “BMW Sees 10-Fold Jump in Its Need for Battery Materials by 2025,” Bloomberg, December 15, 2017.)
Cobalt Supply Side Remains Questionable
Looking at the supply side, there’s one big problem; a lot of cobalt comes from the Democratic Republic of Congo (DRC) and the country is not stable enough (be it politically or geographically) to expect stable production.
Consider that for 2017, the global mine output for the metal is expected to be around 123,000 tons. Congo is expected to produce 66,000 tons of it. (Source: “Cobalt,” U.S. Geological Survey, last accessed January 24, 2018.)
The second-biggest producer of cobalt is China, and it’s expected to produce just 7,700 tons.
See a problem? There are not enough stable sources of cobalt, but there is rapidly increasing demand for it.
Cobalt Prices Outlook for 2018 And Beyond
Long-term readers of Lombardi Letter may have noticed that this is the first time I have mentioned anything other than gold and silver as the next big trade.
I truly believe the cobalt market is worth paying close attention to. In the next few years, just like how precious metal mining stocks could surge in value, cobalt stocks could do the same.
Cobalt prices have been skyrocketing already, but I believe most of the returns could still be ahead. Cobalt trades at roughly $36.00 per pound. In mid-2016, it was trading around $10.00. This represents an increase of 260%.
In 2007, cobalt prices went as high as $50.00. Don’t be shocked if, in the next few years, the metal is trading at much higher prices.
