Bright EV outlook drives desire for price transparency in lithium market - LME

Lithium needs a transparent market where demand and supply meet to foster the growth of the sector, attendees heard during the annual Lithium in the South America conference organised by Panorama Minero on Wednesday November 18.

The event that normally takes place in Buenos Aires was hosted virtually this year due to Covid-19 related restrictions.

Interest around bringing price transparency to the lithium market is underpinned by bright growth expectations in the electric vehicles (EV) market. Adoption of EVs has continued to grow globally despite the economic fallout triggered by the Covid-19 pandemic.

China is the biggest EV market by far, with the European market expected to grow sharply. Chinese new energy vehicle sales saw strong growth in October, reaching 160,000 units, up by 104.5% year on year, and up by 13.9% month on month, according to the China Association of Automobile Manufacturers (CAAM).

In the United Kingdom, Prime Minister Boris Johnson this week announced the UK’s green plan, which includes phasing out sales of new petrol and diesel cars and vans by 2030 to accelerate the transition to EVs.

Lithium is a key ingredient in batteries that power EVs. Earlier this year, the London Metal Exchange announced it will launch its cash-settled lithium futures contract in the first half of 2021.

The LME lithium futures will be based on the monthly average of Fastmarkets’ price assessment for lithium hydroxide monohydrate, min 56.5% LiOH.H2O, battery grade, spot price, cif China, Japan & Korea.

Antonio Masiero, product development manager at the LME, told delegates at the conference: “We will add a lithium futures contract to our offering in coming months to complement our offering for car manufacturers.”

Masiero highlighted the importance of agreeing on a single point of liquidity for the successful launch of the lithium LME futures contract.
“All metals that are trading at the LME revolve around a single point of liquidity within the value chain and market participants upstream and downstream price their assets through premiums and discounts based on that single point of liquidity… the importance of agreeing on a single point of liquidity along the lithium value chain cannot be understated.

“There are two key implications around this, firstly gathering information around a single point of liquidity ensures a more reflective price is used and secondly, and most importantly, it enables all market participants to trade on a single derivative market dramatically lowering their costs of trading.” Masiero said.

“Every futures will represent a single tonne of battery-grade lithium hydroxide… as liquidity grows, market participants will be able to trade up to 15 months in the future so physical market participants can really hedge the year ahead and plan forward their production, their purchases and their sales,” he added.

Asked about how long it takes to build liquidity once a new derivative contract is launched on the LME platform, Masiero said that it depends on a number of factors including the interest of the LME members, “which is why those that are interested in trading or in taking position on an exchange due contact the LME members to start the conversation.”

“I’d say a few years’ time is the minimum requirement to build a new derivative contract,” he concluded.

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