CME Seeks to Tap Electric-Car Demand With Lithium Futures
By Joe Wallace
Commodities exchange operator CME Group Inc. plans to launch a
futures contract for lithium, seeking to capitalize on growing
demand for a metal that helps to power electric vehicles.
The contract will be for lithium hydroxide delivered to China,
South Korea and Japan, where most batteries globally are produced,
CME said Thursday. If the futures contract is approved by
regulators, it will begin trading on May 3.
Allowing lithium to trade freely on an exchange could help shed
more light on historically opaque prices for the metal, a key
ingredient in rechargeable batteries for smartphones, laptops and
electric vehicles. Market participants currently rely on
assessments from commodities-data trackers such as Benchmark
Mineral Intelligence, S&P Global Platts and Fastmarkets.
Lithium's role in powering rechargeable batteries has made it a
strategically important commodity as governments seek to limit
carbon emissions. The U.S. is racing to catch up with China in
mining and refining the metal to support its auto industry and
tackle climate change.
Demand for the metal is expected to boom amid efforts by
governments to wean economies off fossil fuels, as well as moves by
car makers including General Motors Co. to unveil suites of
electric vehicles. But limited visibility over prices, which are
mostly set in quarterly or annual contracts, have put buyers at a
disadvantage in negotiations with producers.
Spot prices for lithium hydroxide and lithium carbonate, the
other main compound of the white metal, have risen this year due to
surging demand for electric vehicles. Prices could drop in the next
few months because some Chinese lithium converters are boosting
production, Platts analyst Jia Hong Ong wrote in a note last week.
But many analysts and investors expect prices to head higher again
as a glut that weighed on the market in recent years
CME's contract will initially be used by car makers, battery
manufacturers and other companies to lock in prices for future
lithium deliveries, said Young-Jin Chang, head of metals at the
exchange operator. Later, investors may trade the futures to bet on
the direction of lithium prices.
"For car makers, you can't change the price of automotives on a
daily basis based on the input costs," Ms. Chang said. "So there's
definitely a need there."
The contract won't be for delivery of actual lithium hydroxide.
Instead, buyers and sellers will exchange the difference between
the futures price and an assessment of prices in the physical
lithium market by U.K.-based Fastmarkets when contracts expire.
Opting for lithium hydroxide marks a bet by CME that auto makers
will shift toward longer-range batteries that harness the compound.
Lithium carbonate, in contrast, is used in cheaper batteries. Ms.
Chang said prices for the two compounds are highly correlated, so
auto makers using lithium carbonate should also be able to use the
The futures contract could help lift lithium production to meet
demand in coming years, said Ernie Ortiz, managing director of
Lithium Royalty Corp., an investment fund that buys revenue
royalties from battery-metal projects. If investors know that
producers are protected against future swings in prices they will
be more willing to lend money to finance new lithium projects, he
"It's potentially going to unleash capital from investors," Mr.
However, the contract faces challenges in getting off the
ground, said George Heppel, head of battery metals at consulting
firm CRU Group. One obstacle: There isn't one reference price used
in most lithium deals, so the contract won't provide a perfect
hedge for many market participants, he said.
Write to Joe Wallace at Joe.Wallace@wsj.com
(END) Dow Jones Newswires
April 08, 2021 12:48 ET (16:48 GMT)
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