Limited Cobalt Availability Bad News for Electric Auto Makers (TSLA, JCI)

As hedge funds and other investors start stockpiling cobalt, companies are at a scramble to obtain more of the metal. A key material in the batteries of electric vehicles, cobalt has become more scarce as a group of hedge funds bought up around 17% of 2016’s global production of the metal, the Financial Times writes.

Why is Demand for Cobalt Growing?

According to a report by the Financial Times, funds are purchasing and investing in about 6,000 tons of cobalt because they believe that demand for the metal will rise. This rise in demand is largely due to the electric vehicle industry starting to gain popularity. The large investment in cobalt means the price of cobalt has now increased even more — having already risen up to more than 50% in price since November 2016. It also means that various tech and electric companies are having, even more, trouble getting their hands on cobalt, as supplies were already dwindling.

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Industry experts and professionals expect the rise in cobalt prices to continue as more people begin to gain interest in investing in cobalt. CRU, a commodity consultancy agency, projects that global demand will cause a shortage of supply of around 900 tonnes in 2017; the deficit is expected to grow by around 20% annually for the next five years.

Cobalt Shortages Not Good for Electric Cars

A large reason for the rise in demand for cobalt is due to the growing production of electric and hybrid cars. It is also being largely used in electronic devices that make use of rechargeable batteries such as cell phones or laptops. Cobalt’s usage in lithium-ion batteries improves its stability as well as its capacity.

As hedge funds start to invest in cobalt by purchasing large amounts of the metal, availability of the already limited supply of cobalt has fallen even further. This is bad news for particular auto manufacturers like Tesla ($TSLA), General Motors ($GM), and Ford ($F), as these companies are currently in the process of making new models of electric vehicles. Companies that produce lithium-ion batteries for electric vehicles such as Johnson Controls ($JCI) and Panasonic (TYO:$6752) are also predicted to be affected by the cobalt shortage. Mainly, companies are concerned that the limited availability of cobalt will lower their profits quite significantly.

Investing in Cobalt

As supplies dwindle and demand soars, many investors are looking to earn some returns by investing in cobalt. If you are one of these investors, look at the mining sector of the market for good cobalt stocks and/or cobalt futures.

Some companies to look into when investing in cobalt are PolyMet Mining ($PLM) and Freeport-McMoRan ($FCX) as they do have efforts in mining cobalt and thus should benefit from rising demand.

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