Will the Cobalt Oversupply End?

The trendiest electric vehicle metal right now is cobalt.

Since October, Google Trends shows interest in cobalt for batteries more than tripling. Have a look:

Meanwhile the price of cobalt has been soaring. Over the past 12 months, cobalt prices are up over 110%. In the past two years, they have ballooned some 275%.

Cobalt is the hottest EV material right now. But there's one major factor that could potentially bring the price of cobalt down significantly: oversupply.

Cobalt is used as a cathode material in lithium-ion batteries. When combined with nickel, manganese, aluminum, and other metals, cobalt-alloy cathodes are more economical and perform better than pure cobalt cathodes.

But cobalt cannot be completely cut out of the lithium-ion battery equation. And this has propelled many EV bulls to invest in the bluish metal. But most of these investors are overlooking one fact...

98% of all cobalt is mined as a byproduct of copper and nickel.

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Cobalt is a secondary product.

What that means is there are almost no pure cobalt mines. And as a byproduct, cobalt prices will typically follow the demand of the primary metals.

It's pretty simple...

If the prices for metals like copper and nickel increase, production of these metals will increase. Miners don't mine for fun. They mine for profit. If the value of a commodity you produced increases, you'd most likely increase production, too.

That means if the production of copper and nickel increases, so does the production of cobalt. And that can lead to an oversupply.

This very dynamic took place in 2008 when cobalt prices plummeted by 70%. Leading up to the crash, copper and nickel prices were drastically increasing along with cobalt. This prompted copper and nickel miners to ramp up production to increase profit. And this ultimately resulted in a cobalt oversupply, which the market is still dealing with to this day.

The global cobalt supply surplus today is about 5,000 metric tonnes. That surplus is narrowing. But as copper and nickel prices are increasing today, we should also expect increases in the production of cobalt.

Since May 2017, copper prices have increased by 40%. Meanwhile, the price of nickel has soared 125% over the same time period. This has already spurred increases in production.

So, you shouldn't invest in cobalt?

Well, let's not go that far just yet.

Truth is, most investors don't understand the dynamic between cobalt and other base metals like copper and nickel. And they aren't going to take the time to learn it.

Markets today operate on speculation and hype. There is very little room for rational realities. And the speculation and hype over cobalt is still soaring.

So, ride the wave. Profit from the hype.

But I strongly urge you: Don't make any long-term commitments.

There is no honor in long-term investing for its own sake. You should never get married to any investment. You only want to date it for a while.

Market cheerleaders will never tell you to sell, even when they're selling themselves. Just consider the Bitcoin and cryptocurrency market. Bitcoin fanboys never say, "Sell." They say, "HODL."

Profit from the hype. But take it all with a grain of salt.

My colleague Keith Kohl is already ahead of the game, with several cobalt miners and explorers already in his portfolio. One of his cobalt stocks is up nearly 30% in less than a week and still powering higher.

Keith recently put together an entire presentation on cobalt, where he gives the details of one of his favorite cobalt stocks, which I think you need to check out now.

These types of geopolitically safe cobalt stocks are still flying under the radar... mostly because they're still really small companies. But that won't last with all the hype.

If you missed the big moves in lithium and want a second shot at EV wealth, check out Keith's most recent cobalt presentation now.

Until next time,

Luke Burgess

@Lukemburgess on Twitter

As an editor at Energy and Capital, Luke's analysis and market research reaches hundreds of thousands of investors every day. Luke is also the investment director of Angel Publishing's new Secret Stock Files newsletter, which helps investors leverage the future supply/demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor's page.