Technical Analysis: The Hottest Metal Story of 2017

It may not be one the most attractive, sexy trade ideas you’ve ever heard.  But this is a metal breakout you may not want to ignore for much longer. 

Every so often, new technology, hefty demand, or supply restrictions can make a formerly underappreciated metal shine.  It’s why cobalt prices are just now breaking higher.  In fact, after being ignored for years, a 12-year chart of shows its price is just beginning to breakout of a seven-year consolidation pattern. 

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Should it continue to run higher, it could challenge a high of near $22.   That’s could happen for a variety of reasons.  For one, Tesla just started its battery giga-factory (the battery industry uses 42% of global cobalt production), and China is moving to build its supply of cobalt with a preference for higher quality batteries.  At the same time, Donald Trump is promising a military buildup that can only happen with increased supplies of cobalt.

It’s also one of the few metals used for super alloys because it has a higher melting point and gives things like jet engines the ability to absorb stress and resistance.  It’s also likely to be used more aggressively in the green economy.  By 2020, 75% of lithium ion batteries are expected to contain cobalt.  Also, by 2020, nearly 20% of cobalt demand will stem from electric vehicles.

Unfortunately, getting supply is the hard part.  At the moment, about 97% of the world’s cobalt supply is produced as a by-product of nickel or copper mining – raising potential concerns that meeting demand will be extremely difficult.   Further supply chain headaches are birthed from the fact that 60% of the world’s cobalt supplies comes from the unstable parts of the Congo, according to OilPrice.com.

Worse, chemical cobalt – used in batteries – is expected to slip into a deficit in the next few years, which can goose the price of the metal even higher.  Better still, cobalt prices may be on the rise, but they’re nowhere near all-time highs of nearly $52.

Again, keep an eye on cobalt prices.  It may not be a sexy-sounding metal, like gold.  But it’s just now breaking above a multi-year consolidation pattern.

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