This is what opportunity in the commoditiesmarket looks like...
Right now, you can buy one of the most important metals of the 21st
century at a fire sale price... simply because no one is paying
For commodities investors, that's good news. In all my years of
investing, I've found that the biggest gains go to investors who
move before the rest of the herd, when acommodity is still
overlooked and underappreciated.
And it looks like that's exactly what's happening with cobalt right
Cobalt is a hard, silvery metal with a multitude of industrial
uses, from pharmaceuticals to communications satellites.
But the most important application is rechargeable batteries,
particularly cobalt-based lithium-ion chemistries found in
cellphones, tablet computers and other devices.
For years, nickel dominated the battery market. But manufacturers
are gravitating toward cobalt designs for several reasons --
chiefly, they can recharge in minutes rather than hours.
Rechargeable batteries currently account for about a quarter of
global cobalt consumption. But this percentage is expected to reach
50% within the next five or six years as countless computers,
phones and hybrid vehicles roll off assembly lines.
Yet, investors don't want anything to do with cobalt. Hardly anyone
is talking about it. The neglected metal is trading at just 25% of
its high four years ago -- meaning you can buy four pounds for the
price of one.
In fact, right now cobalt prices are cheaper than they were during
the entire 2008 meltdown... when the economicrecession sent most
commodities into the abyss.
But today, the globaleconomy is on much firmer ground now.
Manufacturing activity has picked up, strengthening demand for
industrial metals. Copper, zinc, molybdenum and others have at
least partially recovered.
You might think that cobalt would have received the same bounce.
It's not as if batteries have suddenly gone out of style -- Apple
just sold two million iPhone 5s in the first 24 hours of it going
on sale. But cobalt got left behind. In fact,spot prices have slid
even further and currently sit near $13 a pound.
But even though prices have yet to rebound, demand has certainly
recovered. In fact, it has never been stronger. The world used
75,000 tons of cobalt in 2011 -- 20,000 more than it did in 2006.
And consumption should top 100,000 tons by 2015.
Tablet computers alone will boost annual cobalt demand by 11,000
tons. Meanwhile, mobile phone penetration rates are still on the
rise in manyemerging markets .
Worldwide cellular subscriber growth has exploded from two billion
in 2005 to 5.8 billion today. That pace isn't sustainable. But
every year, hundreds of millions of outdated phones are replaced
with upgrades -- and almost every cell phone on the planet contains
about 3.5 grams of cobalt.
So why haven't prices rebounded? Investors just aren't paying
But I think that's about to change. At $13 a pound, cobalt prices
are stuck at their 2006 level. However, annual demand is 20,000
tons greater now than it was then -- and it will rise by another
25,000 tons from here during the next three years.
It won't be easy for producers to ratchet up production to meet the
increased demand either. Cobalt is rarely found in high enough
concentrations to support economical extraction.
And that's not to mention that more than 50% of the world's
reserves are locked in the Democratic Republic of Congo (
), a politically volatile country with inadequate infrastructure.
Let me warn you though, investing in cobalt can be tricky. It
doesn't trade on a major exchange and it's impossible to buy in the
open market. The best way to invest is by owning the mining
companies that are sitting on cobalt assets destined to become even
more valuable during the next few years.
One such company is
Freeport McMoRan (NYSE:
, a mining company with more than 700 million pounds of cobalt
reserves in the DRC's Tenke Fungurume mine. If cobalt prices start
to recover, those 700 million pounds of reserves will become
significantly more valuable.
Action to Take -->
I think it's only a matter of time before they do too. As supply
and demand dynamics start to kick in, cobalt prices should start to
rebound... and when they do, investors who bought early are going
to be handsomely rewarded.
-- Nathan Slaughter
[Note: In my most recent issue of Scarcity & Real Wealth,
I've unearthed a promising pure play for those who want to maximize
cobalt's upside potential. Because it's one of my recent Scarcity
& Real Wealth picks, it wouldn't be fair to my subscribers to
share the name and ticker symbol today. But I will say that it's
possible investors could double or triple their money over the next
two years. If you want to immediately subscribe to my newsletter to
learn more, click here. Don't worry, if you don't like what you
see, you can get a fullrefund within 30 days, no questions
Nathan Slaughter does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of FCX in one or more if its "real money" portfolios.