In light of the GEMS extension today, think we need to talk about Glencore's cobalt marketing strategy and the parallels to what happened in Newcastle thermal coal back in 2017 after they acquired HVO with Yancoal & what Rio Tinto/BHP has done in iron ore last 5 yrs 1/n

Most of these offtake contracts (FD: I have not seen the GLEN/GEMS contract) have index-linked/referenced price mechansims. So hydroxide will be some payability percentage of the metal bulletin cobalt price with some quotational period or trailing average, etc. etc. 2/n

So as these contracts get negotiated more and more volumes become index linked. But what sets the index? Spot volumes...Total volume - index linked volumes = spot volumes...starting to see where this is going if a market gets tight (aka the opposite of uranium)? 3/n

Oversimplifying but example: spot iron ore px is basically set by 1 cargo auctioned every day or two of PB fines along with some cargoes reported to price reporters who set the index. There are DOZENS daily cargoes priced based on where that index is set. Tail wag dog much? 4/n

So let's look at what happened in 6kcal NEWC coal? You no longer had Rio Tinto indiscriminantly placing thermal coal cargoes. You had Glencore traders who recognized how to place cargoes in a tight thermal coal market and didn't put several cargoes onto GlobalCoal 5/n

So what's going to happen in cobalt as all these de-SPAC EV companies need batteries? Well, as volumes of hydroxide are going into offtake agreements, its going to create a very interesting spot market environment...Tesla has the credit quality to do multi-yr offtake...6/n

...but does the next EV company we see de-SPAC'd that has no history of manufacturing / operating? Will cobalt traders take that credit risk knowing if that EV company defaults those volumes get dumped into the spot market? 7/n

I think more likely many of these companies will have to go to the spot market to secure their volumes of cobalt until they are proven operators (so counterparty risk is reduced). This creates a very interesting set up in cobalt for the next 5-10 years 8/n

Since it creates spot market tension in the favor of suppliers, which will benefit index linked pricing as well (but at least those offtake partners will know they will HAVE cobalt volumes). 9/n

Longwinded way of saying cobalt looks very interesting, the koala is very long Glencore, and maybe should follow @TraderPamplona into Jervois $JRV.AX, but there just are so few clean ways to play this metal and dynamic over the medium and long term 10/10