LME launches cash-settled contract for battery-focused cobalt using Fastmarkets price

The London Metal Exchange launched a new cash-settled cobalt contract, settled against Fastmarkets’ benchmark standard-grade cobalt price, on Monday March 11.

Physical cobalt prices have seen dramatic swings in recent years, coinciding with mounting interest in the minor metal, arising from the boom in the use of battery and electric vehicles, and leading to stronger calls for a new way to hedge cobalt exposure.

The standard-grade cobalt price – the benchmark for physical settlement across the cobalt supply chain – was last assessed by Fastmarkets on March 8 at $14.70-15.50 per lb, in-warehouse. This was down by 44.5% from the beginning of the year and by 63.6% from a year ago.

Prices have come under pressure from growing supplies of hydroxide and an overhang of metal not committed to long-term contracts in 2019. Prices were at their lowest since January 2017.

The benchmark low of the standard-grade quote – the basis for cash settlement on the new LME contract – has moved by as much as 9.5% during a single pricing session so far this year. (Fastmarkets assesses cobalt prices on Wednesdays and Fridays.) Average monthly prices fell by 24% in February alone.

Following the slump in price over the past year, cobalt has attracted renewed interest among carmakers, but the ability to hedge will be a necessary part of the procurement process.

“It’s less about price [for the original equipment manufacturers] and more about getting the supply and their contracts watertight,” one banking source told Fastmarkets recently. “If the price is $17 [per lb] at the end of all that, then all well and good.”

The final settlement price for the new LME cobalt contract will be an arithmetic average of the twice-weekly Fastmarkets standard-grade cobalt price in the expiring contract month. Fastmarkets achieved type 1 IOSCO assurance for its standard-grade cobalt price in August last year.

Click here for the cobalt contract specifications.

Fastmarkets will host a webinar alongside the LME on April 8 to introduce the new cash-settled cobalt contract. Register here

See also: Why is cobalt trading below $20 per lb?