LME sets launch date for lithium futures contract settled against Fastmarkets price

The London Metal Exchange will launch its new cash-settled lithium futures contract on June 14, 2021, settled against Fastmarkets’ price assessment for lithium hydroxide monohydrate.

The exchange will also add another aluminium cash-settled futures contract to its suite with the launch of a new European duty-paid aluminium premium contract settled against Fastmarkets’ benchmark Rotterdam premium.

The preliminary launch date of June 14 for both contracts is subject to regulatory approval, the LME said.

The lithium contract will be cash-settled against Fastmarkets’ assessment for lithium hydroxide monohydrate, min 56.5% LiOH.H2O, battery grade, spot price, cif China, Japan & Korea.

Fastmarkets’ lithium price is published weekly on a Thursday at 4pm London time and achieved its Type 2 International Organization of Securities Commissions (IOSCO) accreditation last year.

The launch of a lithium futures contract on the LME is designed to provide price transparency and access to a metal that is pivotal to support the electric vehicle (EV) transition. Lithium is a key ingredient in batteries that power EVs.

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

A single lithium contract can be used for hedging lithium exposure across the value chain.

“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,” Antonio Masiero, product development manager at the LME, said at a virtual event held at the end of last year.

Fastmarkets’ assessment for lithium hydroxide monohydrate 56.5% LiOH.H2O min, battery grade, spot price cif China, Japan & Korea stands at $8.5-9.50 per kg as of the January 21 assessment, down from $9.5-11 per kg on January 30, 2020.

European duty-paid aluminium premium
The new LME European aluminium cash-settled contract will be settled against Fastmarkets’ aluminium P1020A premium, in-whs dp Rotterdam.

The premium is published twice weekly, on a Tuesday and Friday, at 4pm London time, and has achieved its Type 2 IOSCO accreditation.

The LME previously launched a European duty-unpaid contract settled against the Fastmarkets aluminium P1020A premium, in-whs dup Rotterdam in March 2019.

The majority of key aluminium players in Europe trade both duty-unpaid and duty-paid premiums.

Physical aluminium premiums have been susceptible to extreme price swings in the past decade. Having more options, such as the LME cash-settled contracts, gives market participants more opportunities to mitigate risk during volatile market events.

Fastmarkets assessed its aluminium P1020A premium, in-whs dp Rotterdam premium at $150-155 per tonne on January 22. The premium plummeted to a 10-year low of $85-100 per tonne in April 2020, due to falling demand because of the Covid-19 pandemic.

Since 2015, participants have also had the ability to hedge the duty-unpaid Rotterdam premium on the Chicago Mercantile Exchange.

The CME also launched a European duty-paid contract (EDP) in 2016. Last year, Covid-19 uncertainty drove liquidity and led to record monthly contract volumes on the CME’s EDP contract.