Goldman Sachs ramped up its trading in the metallic cobalt for batteries, holding on to one of the hottest corners of the commodity market as automakers transition to electric vehicles.
The bank has been active in the cobalt markets since last year, and recently indulged in physical purchases of the metal for the first time, according to people familiar with the matter.
Intervention by banks such as Goldman can help provide liquidity for cobalt trading, an opaque market where prices are set privately between buyers and sellers.
Automakers need metals like lithium and cobalt for batteries and some of them Directly sourced of miners. But it is open to potentially painful price swings.
Already, the price of lithium carbonate is up 65 percent this year while cobalt sulfate prices are up 24 percent, according to Benchmark Mineral Intelligence.
Prices will likely continue to rise rapidly. To meet the goals of the Paris Climate Agreement, demand for cobalt is set to increase more than twenty-fold by 2040, according to International Energy Agency.
Currently, automakers cannot easily hedge their exposure to battery metals such as cobalt due to the lack of trading on exchanges such as the London Metal Exchange. This is due in part to concerns about the source of some of the physical cobalt found in LME deposits, which may be linked to child labor in the Democratic Republic of the Congo.
CME Group’s Comex Exchange in New York is also building liquidity in the cobalt contract it launched in December. “All contracts take a long time to build,” she said.
Meanwhile, Goldman has been providing hedging products to automakers, in return hedging its exposure by holding physical cobalt, people familiar with its operations said. The bank declined to comment.
The CME last month launched the trading of lithium futures contracts for the first time, while the London Metal Exchange is also set to begin trading lithium this year.
Goldman joined the LME’s Cobalt Committee in March 2020, and is the first bank to become a member of this committee. Electric car maker Tesla is also a member of the committee.
The bank has become a major investor in the switch to electric vehicles. He. She invest About $1 billion this week into Swedish battery company Northvolt, as part of a $2.75 billion funding round.
Goldman has a long history of trading commodities, stretching back to his takeover of J Aron & Co in 1981. Former CEO Lloyd Blankfein grew up through the commodities division.
However, in recent years it has scaled back some of its physical goods business.
In 2014, it sold Metro International Trade Services to operate warehouses after a US Senate subcommittee alleged it had contributed to higher aluminum prices by shuffling the metal between warehouses — allegations the bank denied.