The car makers scramble with the hedge funds to secure this key resource

Tuesday, 26 December 2017
Melbourne, Australia
By Terence Duffy

  • The hot new metal
  • The auto industry revolution
  • One for the watchlist

Editor’s note: Kris Sayce, Bernd Struben and the staff at Port Phillip Publishing are taking a break for the holidays. We will be returning to our posts on 2 January, 2018. While we’re away, we’re bringing you some complimentary back-issues of Money Morning Trader.

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The following article was originally published on 3 August 2017.

Last year, it was lithium. But this year, the lesser known mineral component of batteries — cobalt — is having its year in the sun.

And there are a number of good reasons why, the main one being the future demand of electric vehicles.

With lithium-ion batteries, one of the major components is actually cobalt, more so than lithium. Cobalt makes an efficient electrode, and helps store power for longer, allowing electric cars to extend their range between charges.

The revolution going on in the auto industry right now is absolutely incredible.

For example, in March this year, Mercedes-Benz announced it was going to invest 10 billion euros to release a range of electric vehicles by 2022. That’s just short of $15 billion in Aussie dollar terms.

And all the other major car manufacturers are doing something similar.

They can see the writing on the wall. The world’s largest car market is leading the way when it comes to cleaner energy driving.

China is pursuing aggressive zero emission targets on all new cars, and spending billions to scale up production of plug-in vehicles, which seem to be gaining traction among drivers.

More electric cars are sold in China than in the rest of the world combined. And, by 2020, Beijing wants five million plug-in cars on its roads.

But the car makers are in competition with the hedge funds to secure this key resource.

Half a dozen funds, including Swiss-based Pala Investments and China’s Shanghai Chaos, have purchased and stored an estimated 6,000 tonnes of cobalt. The stockpile amassed by the funds equates to 17% of last year’s global production.

The other factor pushing up the price of cobalt is certain supply issues.

Most of the world’s cobalt presently comes from the politically unstable Congo, and there are a number of other issues there relating to working conditions and child labour.

A Washington Post investigation exposed an industry of child labour and deadly work conditions. This troubling trade was connected to a Chinese firm which supplies

Apple products.

After the revelations, Apple Inc. [NASDAQ:AAPL] stopped buying the cobalt while continuing to deal with these problems.

Cobalt buyers are looking for a clean, ethical supply of cobalt metal and they need it reliably.

One company which meets that criteria is ASX-listed Clean TeQ Holdings Ltd [ASX:CLQ].

The company has a mineral resource rich in nickel, cobalt and scandium, 350 kilometres west of Sydney.

Nickel and cobalt are both essential for batteries, while scandium is used in aluminum alloys for the next generation of lightweight aircrafts and automobiles.

The scandium component gets overlooked, but some analysts forecast enormous demand for scandium to produce a whole new family of high-performance aluminum materials.

Clean TeQ is also involved with water treatment, which is another revenue stream for the company.

The company released its half year result in February. That showed the company to be a loss-making operation, as it endeavours to progress the development of its nickel-cobalt project.

Let’s bring up the daily chart:

chart image

Source: Optuma
Click to enlarge

Note the big reversal bar, which marked the March top. I’ve touched on this subject before. A big reversal bar like that can often signal a change in trend. It did in this instance anyway.

The share price finally made a low in June and, since then, is starting to find higher support and resistance overhead around 86 cents.

Clean TeQ is one for the watchlist.

There’s still plenty of news to come from this company, including the results from the definitive feasibility study, and news of nickel-cobalt and scandium offtake agreements.

A break above 86 cents might suggest some of that news will be positive.

Let’s wait and see.

Good trading,

Terence Duffy,
Editor, Money Morning Trader

I (Bernd) thought you might like to see how this one played out. Below you can see what the chart did tell you, as updated on 6 December:

chart image

Source: Optuma
Click to enlarge

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