As the perceptive will have noted there’s a certain excitement going on in the world of batteries and the electrical and electronic items which can be powered by them. As the similarly perceptive will have noted Apple’s sitting on vast piles of real cash money. There’s great good sense in the company using that cash to make sure that the excitement doesn’t affect its future plans. Which is exactly what it is reported they’re doing, using the cash stocks to make sure they’ve sufficient cobalt stocks to be able to continue to make the batteries their equipment needs:
Apple Inc. is in talks to buy long-term supplies of cobalt directly from miners for the first time, according to people familiar with the matter, seeking to ensure it will have enough of the key battery ingredient amid industry fears of a shortage driven by the electric vehicle boom.
Well, there’s not going to be a shortage, that’s not how metal markets work. But there could certainly be a price change. And Apple is going to have to pay whatever that future price is too, that’s the way metal markets do work.
Cobalt is a key mineral used in lithium-ion batteries, and Bloomberg says that Apple is looking to secure contracts for several thousand metric tons of cobalt each year for five years or longer. Its first discussions for deals took place a year ago, but another source told Bloomberg that Apple might not even go ahead with the plans.
Different metals markets work in different ways and the correct reaction to thoughts of a future “shortage” vary dependent upon the specific metal. With copper you would do one thing, with cobalt another, with scandium a third.
Apple may cut out the cobalt middlemen by obtaining supplies for its batteries on its own. According to a Bloomberg report, Apple is in talks with miners to buy long-term supplies of cobalt, a key ingredient in the lithium-ion batteries used in Apple’s iPhones and iPads. Apple has reportedly been in discussions to secure contracts for “several thousand metric tons” of cobalt each year for at least five years.
The background here is that it takes some years to get a cobalt mine up and running. A decade or more in fact. So, if new uses are found, as this battery revolution is, then it’s going to take time to produce the larger amount desired. Rising demand meets fixed in the medium term supply, prices will rise. OK.
So, if we’re talking copper then you go out and buy futures. That way you can fix the price of your future deliveries, you’re covered. Cobalt’s not really that sort of market. With something much smaller, like scandium (dear to our hearts here) you wouldn’t buy the futures which don’t exist. You’d do far better to actually go dig a hole in the ground and produce your own. Cobalt’s in the middle. The futures market, if it even exists, certainly isn’t deep enough to provide 5 year coverage in those sorts of volumes. So, make direct contracts with producers, that’s fine.
However, producers aren’t going to fix prices for that sort of period. So Apple’s still open to price variation. All this does mean is that they’ll get – assuming they go through with such contracts – is regular supplies of known and named material. Rather than having to scramble around the middlemen to try and make their monthly or quarterly nut at whatever price they can get it for.
They’ll also have to commit to taking the cobalt whether they want it or not. That’s a significant financial proposition right there. No miner is going to sign a guaranteed delivery contract to someone who may or may not be able to pay for it. But then Apple has all that cash, this sort of backing a supply contract is exactly what is a good use of it.
But the major point to take here is that while Apple may be one of the few organisations with the finances to make believable promises for a 5 years supply of cobalt they’re still not going to be able to price fix it. They’ll be able to get security of supply but the price will still vary along with the more general market one. That’s just the way the cobalt market works.