Goldman Sachs has stepped up trading in battery cobalt metal, clinging to one of the hottest corners of the commodities market as automakers switch to electric vehicles.
The bank has been active in the cobalt markets since last year and recently plunged into physical metal purchases for the first time, according to people familiar with the matter.
The involvement of banks such as Goldman could help bring liquidity to the cobalt trade, an opaque market where prices are set privately between buyers and sellers.
Automakers need metals such as lithium and cobalt for batteries, and some source it directly minors. But they are open to potentially painful price fluctuations.
Already, the price of lithium carbonate has increased 65% this year while the prices of cobalt sulfate have increased 24%, according to Benchmark Mineral Intelligence.
Prices should continue to rise rapidly. To meet the objectives of the Paris climate agreement, the demand for cobalt is expected to increase by more than twenty by 2040, according to at the International Energy Agency.
At present, automakers cannot easily hedge their exposure to battery metals such as cobalt, as there are too few trades on exchanges such as the London Metal Exchange. This is in part due to concerns about the provenance of some of the physical cobalt held in LME warehouses, which could be linked to child labor in the Democratic Republic of the Congo.
The CME group’s Comex stock exchange in New York is also working on building up liquidity in its cobalt contract launched in December. “All contracts take time to build,” he said.
Goldman, meanwhile, provided hedging products to automakers and in turn hedged its own exposure by holding physical cobalt, people familiar with its operations said. The bank declined to comment.
The CME exchange started trading lithium futures for the first time last month, while the LME is also expected to start trading lithium this year.
Goldman joined the LME’s cobalt committee in March 2020, the first bank to join. Electric car maker Tesla is also a member of the committee.
The bank has become a key investor in the transition to electric cars. He invested about $ 1 billion this week in Swedish battery company Northvolt, in a $ 2.75 billion funding round.
Goldman has a long history in commodities trading, dating back to its takeover of J Aron & Co in 1981. Former CEO Lloyd Blankfein went through the commodities division.
In recent years, however, it has reduced some of its physical commodities business.
In 2014, it sold warehouse operator Metro International Trade Services after a US Senate subcommittee alleged it had contributed to the rise in aluminum prices by mixing the metal between warehouses – allegations that the bank refuted.