TALLINN (Reuters) - Exotic metals such as cobalt, vanadium and molybdenum may be the next targets for investors in the world's overcrowded commodity markets, financiers and traders said this week.
"There are a lot more people in the metals business, and people are looking for unexplored, unsaturated markets," said Daniel McConvey of New York based commodity trading adviser Rossport Investments, which invests in the so-called minor metals.
Most of the multi-billion dollar investment in metals this decade has gone to copper, nickel and other key industrial commodities.
But the amount of money poured into these metals has made it harder for fund managers to make a return, so they are looking at other materials, says Keith Dunleavy, trader at London firm Stratton Metals.
He has sold cobalt to hedge funds, and he reckons they expect prices to rise well beyond their current 11-year highs above $30 per lb.
"They started getting into cobalt at $22 and $24. We started badgering them to take profit at $28 but they are not interested," he said.
"The funds do immaculate research, and they got the fundamentals of nickel correct," he said at a conference in Estonia hosted by the Minor Metals Trade Association.
The major fundamental factor behind rising minor metals prices is their use in products from flat screen televisions to aircraft parts and car exhaust catalysts.
"Lots of these metals are hi-tech, and with the explosion in hi-tech, minor metals are going to feel some of that explosion," Rossport's McConvey said.
Cobalt in particular is expected to rise. Earlier this month, Credit Suisse said the metal could spike to $40 per lb as demand grows.
More hedge funds are knocking on the door of trading firms to try to find a way to take a position in cobalt.
Unlike copper and nickel, though, cobalt is not traded on an exchange. so the market can be opaque and accurate pricing data hard to find.
"One of the perennial problems of minor metals for the larger funds is transparency, reportability and volume," Nick French, managing director of trading firm SFP Metals, said.
"I know for a fact they'd love to have been in cobalt, and still would love to be, but they are struggling to see how to apply their funds to illiquid markets," he said.
An alternative to buying the metal itself is to buy stock in a company that produces cobalt, said Marcus Edwards-Jones, managing director of brokerage Lloyd Edwards-Jones.
"If you want to trade cobalt, the best thing is to buy a big chunk of Camec (CFM.L) shares," he said, referring to a London-listed company that, among other projects, mines cobalt in the Democratic Republic of Congo.
The advantage of buying shares in a company that produces more than one metal is that should prices fall in one market, the negative impact on share price could be offset by a price rise for another commodity it produces, he said.
A big difficulty for investors in minor metals is how to close down their position without unleashing a large amount of metal onto the market, which would cause prices to fall.
"Getting out of a big block of vanadium without trashing the price does make it very difficult for all but the most adventurous investors," Edwards-Jones said.
Investors hope the London Metal Exchange's suggestion that it could launch contracts for minor metals comes to fruition.
"It would be nice to have," McConvey said. "You could probably hedge positions, which would allow funds and other investors to enter the market with more comfort and less risk, and increase the liquidity of these metals."
Thu Apr 26, 2007
Rolls-Royce says no alternative to high-cost metals
TALLINN (Reuters) - Prices of aerospace metals nickel, cobalt and rhenium are at their highest for years, but engine makers have little choice but to carry on buying them, Rolls-Royce said on Thursday.
These raw materials have special properties which mean they cannot easily be replaced in aircraft engines, though their cost has surged recently, Leon Grabowski, Sourcing Specialist at the firm said.
"Once it is designed, tested, flown in, it's almost impossible to take it out," he said.
He was not able to give a figure for the impact of higher raw materials costs on Rolls Royce's bottom line, but said the firm needed to be sure it had a stable supply of the metals it uses.
"I'm more concerned with delivery than price," he said, referring particularly to scarce metals such as cobalt, rhenium and tantalum.
Cobalt prices have doubled to around $30 per lb in the past year, while nickel hit an all-time high of over $50,000 per tonne this week.
Nickel, which is mined by companies such as Xstrata , CVRD and Norilsk , makes up more than half of a new aircraft engine, Grabowski said.
Rolls-Royce was trying to deal with price spikes and volatile metal markets by signing long-term contracts with producers either at a fixed price or a capped price, or by buying up metal to keep in stock for the future.
"The challenge is to have a strategic relationship with more than a single supplier," he said.
Grabowski was attending a specialty metals conference in Estonia.
http://www.formcap.com/s/CobaltNews.asp
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