Hedge funds are making bold moves in the cobalt market, snapping up physical material in a bid to capitalize on tumbling spot prices and a more liquid futures market. Anchorage Capital Advisors and Squarepoint Capital are among the financial players betting big on cobalt, a specialized market facing oversupply from the Democratic Republic of Congo and Indonesia.
The surge in hedge fund activity mirrors a trend from almost a decade ago, when funds like Pala Investments profited from buying up cobalt amid weak prices. However, the landscape has shifted with the introduction of a more liquid futures market on the CME Group’s Comex exchange, allowing traders to hedge their physical positions.
The widening gap between spot and futures prices has created opportunities for “cash-and-carry” trades, where owners of physical metal can profit from surging spot prices or lock in returns by selling futures. Squarepoint has been acquiring cobalt metal, while Anchorage has been active in trading both cobalt metal and cobalt hydroxide for EV batteries.
Despite the potential for profits, traders face added risks due to the cash settlement nature of CME contracts and the excess supply in the market. The rise of lithium-iron phosphate batteries, which don’t require cobalt, further threatens demand for the metal.
However, signs of optimism come from China’s strategic stockpiling efforts and potential interest from the US in bolstering its own metal reserves. With cobalt’s strategic value in electric vehicles and defense, the future of the market remains uncertain but ripe with opportunities for those willing to take the risk.
