Why Are Hedge Funds Buying Up Physical Cobalt?

Cautious optimism is creeping back into the cobalt metal market as hedge funds move to physical purchases of the battery metal as prices slump to seven-year lows. With oversupply conditions and slumping electric vehicle demand, the market could soon find balance, given cobalt's critical role in the energy transition toward a net-zero future. 

According to Bloomberg, citing people familiar with the matter, Anchorage Capital Advisors and Squarepoint Capital LLP have quietly purchased physical cobalt. 

Squarepoint has been buying cobalt metal from traders, according to people familiar with the matter, while Anchorage has been buying both cobalt metal and cobalt hydroxide - an intermediate product in the production of cobalt sulphate that goes into EV batteries. Anchorage has also been active in trading on CME, said some of the people, who asked not to be identified as the information is private. -BBG

Both hedge funds have been buying physical cobalt as spot prices hover at seven-year lows, oscillating between $15 and $12.5 a pound for much of this year. Prices peaked at $40 a pound during the EV mania in 2022. 

"Surging supply and weaker-than-expected sales in the EV sector have contributed to a record surplus in the market this year, and many in the industry are pessimistic about the prospects for a rebound. The rise in popularity of lithium-iron phosphate batteries, which don't require cobalt, also poses a threat to demand," Bloomberg explained. 

However, Bloomberg noted that China's strategic stockpiling agency has been soaking up surplus inventories of the metal in record volumes this year "in a trend that underscores the metal's strategic value both in electric vehicles and defense." 

A look at the ProShares S&P Global Core Battery Metals ETF (ION), which includes companies generating positive revenue and production value from mining lithium, nickel, or cobalt, shows it has been trading sideways since peaking in 2022.

A recent International Energy Agency report showed how cobalt will expand 7-fold by 2030 and 10-fold by 2050 to over $400 billion as it plays a critical role in reaching the global net zero target in the decades ahead. 

Carbon Credits noted in April, "Although the bottom for cobalt prices is uncertain, some analysts anticipate a gradual improvement in prices over the next few quarters." 

By Zerohedge.com

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