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Goldman Sachs has intensified its trade with cobalt metal batteries and joined one of the most popular corners of the commodity market as vehicle manufacturers switch to electric vehicles.
The bank has been active in the cobalt markets since last year and has recently immersed itself in physical purchases of the metal for the first time, according to people familiar with the subject.
The involvement of banks like Goldman could help bring liquidity to the cobalt trade, an opaque market where prices are privately determined between buyers and sellers.
Manufacturers need metals like lithium and cobalt for batteries, and some get directly of the miners. But they are open to potentially painful price fluctuations.
Already, the price of lithium carbonate has risen 65 percent this year, while cobalt sulfate prices have risen 24 percent, according to Benchmark Mineral Intelligence.
Prices are likely to continue to rise rapidly. To achieve the goals of the Paris climate agreement, the demand for cobalt will increase more than twenty times in 2040, seconds at the International Energy Agency.
At the moment, vehicle manufacturers cannot easily cover their exposure to battery metals such as cobalt, as there is little trading on stock exchanges such as the London Metal Exchange. In part, this is due to concerns about the provenance of some of the physical cobalt that is preserved in LME warehouses, which could be related to child labor in the Democratic Republic of the Congo.
The CME Group’s Comex exchange in New York is also working to increase the liquidity of its cobalt contract that began in December. “All contracts take a long time to build,” he said.
Goldman, meanwhile, provided coverage products to vehicle manufacturers and in turn covered its own exposure while maintaining physical cobalt, people familiar with its operations said. The bank declined to comment.
The CME stock exchange launched lithium futures trading for the first time last month, while the LME will also start trading lithium this year.
Goldman joined the LME cobalt committee in March 2020, the first bank to join. Electric vehicle manufacturer Tesla is also a member of the committee.
The bank has become a key investor in the transition to electric cars. That invested about $ 1 billion this week to Swedish battery company Northvolt, as part of a $ 2.755 billion funding round.
Goldman has a long history of commodity trading, dating back to the takeover of J Aron & Co. in 1981. Former CEO Lloyd Blankfein rose through the commodity division.
In recent years, however, it has reduced some of its physical commodity businesses.
In 2014, it sold warehouse operator Metro International Trade Services after a U.S. Senate subcommittee alleged it had contributed to rising aluminum prices by mixing metal between warehouses, according to allegations that the bank has refuted.
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