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Tuesday, September 26, 2023

How to Invest in Cobalt

Cobalt has been used for thousands of years as a blue coloring agent in pottery, glass and ceramics.

However, in recent years demand from more high-tech sectors has emerged. Today, this critical metal is used in batteries for electric cars and in energy storage, alloys and more.

The battery sector in particular has become an important source of cobalt demand. Demand for lithium-ion batteries, which require cobalt, is surging, and analysts expect that this demand will drive the cobalt market in the coming years. At the same time, cobalt supply could tighten substantially due to human rights abuses in the Democratic Republic of Congo (DRC), where most cobalt is produced.

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Given those factors, many investors are now wondering how to invest in cobalt. To help those interested in the sector, we’ve put together a brief guide on cobalt supply and demand and different investing options. Read on to learn more about this exciting critical metal.

How to invest in cobalt: Supply and demand

Cobalt is mainly produced as a by-product of copper and nickel, with the DRC supplying the bulk of the world’s cobalt. Most DRC cobalt comes from an area known as the Copperbelt, which accounts for 40 to 50 percent of cobalt output in the DRC. The country holds half of global cobalt reserves.

The DRC produced 95,000 metric tons of cobalt in 2020, far ahead of runner-up Russia’s 6,300 metric tons. The Eastern European nation was the world’s second largest cobalt producer that year, while Australia (5,700 metric tons) and the Philippines (4,700 metric tons) were the third and fourth largest, respectively. Cobalt is currently produced in about a dozen countries worldwide.

As noted, cobalt from the DRC is facing increasing scrutiny. While cobalt is not officially a conflict mineral, some human rights groups are pushing for it to receive that designation. Many DRC cobalt operations and mines are dangerous and poorly managed, and these human rights groups believe that cobalt end users should be sourcing the metal elsewhere.

Cobalt demand is also important to look at. It’s tough to say exactly how much demand for the metal will increase in the coming years, but many experts agree growth will be substantial. As noted, the lithium-ion battery market will be a huge driver of that demand, with battery production rising due to the expected surge in electric cars. Lithium-ion batteries are used in other electronics as well.

The consensus seems to be that those supply and demand dynamics will push the cobalt market into deficit in the coming years. Researchers at the Massachusetts Institute of Technology forecast that global cobalt demand will rise to between 235,000 and 430,000 tonnes by 2030. That figure is 1.6 times the world’s current cobalt refining capacity.

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How to invest in cobalt: Futures and stocks

Those circumstances have left many investors interested in cobalt investing. There are two main ways to invest in cobalt: cobalt futures and cobalt stocks.

Cobalt futures can be found on the London Metal Exchange under the symbol CO. These futures began trading in early 2010 and are quoted in US dollars per tonne. Contracts range over a span of 15 months, allowing investors to make bets on the metal over varying time periods.

Another option to get exposure to the critical metal is to invest in cobalt-mining companies. Benchmark Mineral Intelligence Head of Price Assessment Caspar Rawles has recommended that any investor interested in investing in cobalt look at copper and nickel companies that are mining or exploring for cobalt, “unless (they) are lucky enough to find a (junior with a) deposit that is primarily cobalt.”

He added, “I think the key for smaller companies is to be targeting value-added products further downstream than simply a concentrate, such as cobalt sulfate, targeting the battery supply chain.”

Our overview of Canadian cobalt companies that have seen year-to-date gains includes a number of larger companies with exposure to cobalt, as well as some smaller companies looking to break into the space. It is a good place to start for those who are new to the industry.

Investors may also want to read our list of the largest cobalt-mining companies.

This is an updated version of an article originally published by the Investing News Network in 2010.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

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