Futures aid volatile lithium market; supply seen as key risk

Recently launched futures contracts can help mitigate significant volatility in the lithium market, but in the long term it is supply shortages that will keep buyers awake at night, according to market experts speaking at Fastmarkets Lithium Supply & Markets conference 2021 in Las Vegas.

September 21, 2021

The industry used to rely on fixed pricing, which meant “someone always won, and someone lost,” according to Daniel Jimenez partner at iLi Markets. Futures will be a useful tool for more sophisticated participants to offset some of that risk.

Both the Chicago Mercantile Exchange and the London Metal Exchange have launched futures contracts based on Fastmarkets’ lithium prices.

Longer-term, the biggest risk facing the industry is a lack of supply. Lithium demand is set to grow about 150,000 tonnes this year, to a total of almost 500,000 tonnes, from 320,000 tonnes, according to Jimenez.

A lack of investment and the time it takes to bring a mine to production are key risks in getting that supply, according to Will Adams, head of battery metals research at Fastmarkets. It can take as little as one to two years to build a downstream facility, but five to 10 years to bring a mine online, Adams said on Monday September 20.

At the same time, the market share of electric vehicles (EVs) as a percentage of general automotive sales is growing sharply, meaning more lithium supply is needed rapidly, said Adams. In France, for example, EVs already made up 16% of new car sales in August.

While supply and demand are in flux, lithium prices are not expected to be as volatile as the boom or bust cycle of the last several years, Adams said. New supply should mitigate prices somewhat, but not lead to a crash, like the ones between 2016 and 2019 and 2020. “We’d be surprised if there was a price collapse,” said Adams.

Fastmarkets’ lithium hydroxide monohydrate 56.5% LiOH.H2O min, battery grade, spot price, cif China, Japan & Korea was $20-21 per kilogram on September 16. A year ago, the assessment was $8.50-9.50 per kg.

Futures growth should ensure that the industry is moving towards a central price that contracts are set around, said Jimenez. In the past, it was hard to get industry participants to structure contracts around fluctuating prices.

Futures will set a “consistent price signal” in lithium markets that have been volatile, Kevin Smith, managing director, Traxys North America, said.