Is Cobalt the Future's Precious Metal?
When people talk about “precious metals,” they're generally referring to four chemically similar elements on the periodic table: gold, silver, platinum, and palladium.
These are elements that, in their metallic forms, have served a dual function in society:
- As money and/or wealth storage
- As critical industrial components
As a result, these metals have become fashionable as jewelry.
Gold is the most well known as a precious metal. It has been used as money and wealth storage (and jewelry) for thousands of years. Less known, though, are gold's manufacturing applications. Gold is very soft and easy to work with, can be easily alloyed with other metals, and is a great electrical conductor and heat shield.
Platinum and palladium, on the other hand, are less known as precious metals. That's because, relative to gold, these metals have only recently become wealth storage vehicles. Platinum, for example, wasn't used in coinage until the 16th century — and even then, it was used as a cheaper substitute for silver.
Today, both metals are critical components for transportation due to their catalytic properties. Palladium, for instance, can absorb up to 900 times its own volume in hydrogen. This has made it and platinum vital for the manufacturing of catalytic converters.
Through the centuries, both platinum and palladium became standardized substitutes for gold and silver as wealth storage vehicles. Platinum and palladium coins were experimented with in the 18th and 19th centuries, but it wasn't until the 1980s that government mints began regularly issued platinum and palladium bullion.
Precious Metals of the Future
It's clear that what we consider a “precious metal” is not static. Our wealth storage and industrial needs are always changing. So I don't think it's much of a stretch to imagine there will be other metals we might consider “precious” — or at least more precious — in the future.
The most obvious contenders right now seem to be lithium and cobalt due to the demand for them in electric vehicles. But both are very common. Lithium and cobalt are the 25th and 23rd most abundant elements on the planet, respectively. And one key characteristic of a “precious metal” is rarity.
Yet crustal abundance is only one factor that goes into our ability to access any resource. More often than not these days, geopolitics is the deciding factor.
Cobalt Supply Problems
The demand for electric vehicles is still set to absolutely explode over the next several years. The IEA estimates the global electric vehicle stock will increase from 2 million in 2016 to between 40 million and 70 million by 2025. Its low projection is a 20-fold increase in demand over 10 years.
And I'm sure you know EVs depend on lithium-ion batteries to store their energy.
But the lithium-ion batteries used in electric vehicles aren't simply hunks of lithium with terminals. There are other key metals required to produce rechargeable EV batteries that are often overlooked.
Take a look at the word “lithium-ion” for a moment...
The “lithium” part is obvious. But have you ever wondered what the “-ion” of “lithium-ion” is?
Well, it's basically cobalt.
Rechargeable lithium-ion batteries are actually named for their active ingredients. Inside each is a lithium compound that acts as the battery's cathode material.
The most common lithium compound used today is lithium cobalt oxide, or LiCoO2.
Stay with me here...
The cobalt in a LiCoO2 battery is the main active ingredient and allows for the ionic movement that enables the recharging process. In other words, it's the cobalt in a rechargeable Li-cobalt battery that makes the battery rechargeable.
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Battery chemists also use other metals such as manganese and nickel to make compounds that serve the same purpose. However, lithium cobalt oxide remains the preferred compound today. Roughly three out of every four lithium-ion EV batteries contain cobalt... a lot of it.
On average, a single lithium-ion EV battery contains over 30 pounds of cobalt.
And with conservative projections of a 20-fold increase in global EV demand, forecasts show a whopping 4,500% surge in demand for cobalt between now and 2030.
The coming surge in demand has sent auto manufacturers scrambling to secure resources. But they've all run into a major supply hurdle.
As I mentioned in my previous report to you, the best place in the world to mine the cobalt metal is the worst place in the world to mine anything: the Democratic Republic of Congo.
Over half of the world's cobalt resources are located in the DRC. And currently, the DRC accounts for over 50% of global production of cobalt. But the country hosts a mountain of issues that constantly threaten stable mining output.
Geopolitical instability and corruption are commonplace. And key cobalt mines are frequently shut down.
But now the DRC cobalt industry is also under harsh scrutiny for child labor and human rights violations. According to UNICEF, as many as 40,000 children were working in mines across southern DRC in 2014. It's a mess.
Due to its critical use in future transportation and the geopolitical nightmare that holds up half the entire world's resources, cobalt might be considered more precious in the future.
However, simply due to the fact that the DRC holds half the world's resources, it's very unlikely governments will be issuing cobalt bullion anytime soon.
Still, for investors, cobalt should be a precious metal. Nothing is going to stop the electric vehicle revolution. Stay long cobalt.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging 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.
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