The London Metal Exchange has launched a new contract for the lithium metal battery, instituting a transatlantic battle with US rival CME Group, as exchanges seek to capture a rapid growth in demand for commodity-related goods. and electric cars.
The LME said the lithium contract was “designed to bridge” the need for battery and vehicle manufacturers to cover their exposure to volatile lithium prices, and the growing interest of investors seeking exposure to the rapidly growing sector.
The move comes after CME launched a similar contract in May for the metal battery. The two exchanges also compete in cobalt, another key battery metal.
Demand for lithium will increase sevenfold in 2030 as sales of electric vehicles grow, according to the Benchmark Mineral Intelligence consultancy. Prices for lithium hydroxide in China, the world’s largest electric vehicle market, have risen 86 percent this year.
All electric cars use lithium-ion batteries, which rely on the metal to store energy. Lithium hydroxide is the compound favored by many battery manufacturers and car manufacturers like Tesla because it allows the use of more powerful nickel-based batteries.
Many lithium miners were initially hostile to the LME plan, since a future contract would standardize a product that is produced to different qualities and grades.
But the LME said it had spent three years working with the lithium industry on the launch of the liquidated futures contract. The lithium exchange committee includes members of Albemarle, the largest lithium producer in the world, as well as automakers including Tesla.
“The launch of the liquid-hydroxide lithium futures contract represents a significant milestone not only for the LME but also for the global lithium industry,” said Ron Mitchell, sales director of Tianqi Lithium, a Chinese lithium producer.
“The contract offers the industry an important price risk management tool and comes at a critical time to support the future electrification goals of many nations.”
Most lithium supply offers between vehicle manufacturers and miners are long-term offers based on assessments from tariff agencies. For car companies a futures contract provides greater visibility into prices in the future, which will allow them to cover their exposure. It is especially critical in an environment of rising prices.
“One of the most frequently asked questions in lithium is where prices will go tomorrow,” said Martim Facada, battery raw materials broker at SCB Group. “Having a forward curve helps solve that problem and allows you to better forecast, better control costs and better coverage.”
The LME and CME contracts are identical in that they are both based on the prices of lithium hydroxide in China, Japan and South Korea, produced by Fastmarkets.
Last year CME launched a new contract for cobalt, which will be traded now in December 2023 in the future and has gained some traction with traders.
The LME said the lithium launch was part of a broader sustainability agenda that included new contracts for recycled metals and the ability for producers to add a carbon footprint to their metals on the exchange.
The LME said Monday it had also launched a contract for aluminum scrap focused on the U.S. market for used beverage cans.