Every few months, Robert Mitchell travels from his office near Portland, Ore., to a Connecticut warehouse and checks in on his biggest investment.
Mr. Mitchell’s fund owns millions of dollars worth of cobalt. He is so confident that its use in electric-car batteries will cause demand to surge that he has been buying and storing more than a thousand metric tons of the stuff—worth more than $56 million at current prices.
He feels he has little choice but to hold physical metal, since acquiring a cobalt position in financial markets is so hard.
“There’s a lot of money looking for a home in cobalt,” Mr. Mitchell said. “They really don’t have a great way to play it.”
Cobalt has long been a component in tires, magnets and smartphones. Now, it is the latest material, along with lithium and copper, to benefit from its use in the lithium ion-batteries that power electric vehicles.
Slightly more than half of all cobalt bought or sold last year went toward rechargeable batteries, up from 20% in 2006, according to Benchmark Mineral Intelligence.
Battery manufacturers’ soaring demand for the hard, silvery metal has propelled cobalt’s value to its highest level since 2008. Prices are up 70% this year through Wednesday to $56,500 a metric ton, making it the top-performing commodity traded on a major futures exchange.
Yet there is a problem for many investors eager to add a position: How do you get it?
Reliable data on cobalt trading is hard to come by, since the majority of transactions occur directly between the handful of specialized trading houses, producers and consumers of the metal. The ranks of traders shrank after the financial crisis and subsequent collapse in commodity prices drove many firms that deal in cobalt out of the business, traders said.
Physical trading activity still exceeds that of the seven-year-old futures market. While volume in cobalt futures on the London Metal Exchange quintupled during the first five months of 2017 over the same period last year, the lack of participants keeps prices vulnerable to sudden swings. On May 4, for instance, prices dropped by more than $3,000 a ton in one day, driven down by one seller before recovering, traders said.
Instead, some money managers have purchased shares of companies that produce cobalt. But since cobalt is a byproduct of copper and nickel mines, the big producers come with a lot of exposure to other metals. Copper is up 1.6% so far this year, but nickel has dropped by nearly 12%.
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