LME WEEK 2020: LME selects lithium hydroxide price to underpin futures contract

The London Metal Exchange will launch a lithium contract based on the monthly average of Fastmarkets’ price assessment for lithium hydroxide monohydrate, it said during an online briefing on Thursday October 22 as part of the annual LME Week event.

The contract will use the assessment for lithium hydroxide monohydrate, min 56.5% LiOH.H2O, battery grade, spot price, cif China, Japan & Korea. It is planned for launch in the first half of 2021, the LME said, although it would be up to regulators and the lithium committee to assess market readiness.

The spot price was most recently assessed at $8.50-9.50 per kg on October 22, unchanged since mid-September, and with most sales done within the current range.

The LME addressed the complexities of the market when identifying a clear reference price to differentiate between lithium hydroxide and lithium carbonate.

“A number of users have exposure to lithium chemicals others than hydroxide and in particular to carbonate,” Antonio Masiero, product manager at the LME, said.

“To assess whether the entire market can use a single contract, we looked at the correlation of weekly prices between carbonate and hydroxide,” he said, adding that the exchange also looked at the correlation with domestic prices in China.

“We are confident that most market participants will be able to hedge their exposures with the contract we are launching,” Masiero added.

Reference prices are highly beneficial for market participants, allowing for transparency, fair negotiation practices and long-lasting business relations, he said.

This was especially important at a time when lithium demand was getting long-term support from the electric vehicle industry amid a global decarbonization of economies, he added.

The LME will continue to work with industry participants and to engage with LME members ahead of the launch of the contract.

“In the coming months,” Masiero said, “we will continue to work with Fastmarkets to foster the adoption of reference pricing in the lithium industry, and in parallel we will continue to ensure the development of the lithium contract.”

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