LME One Step Closer to Launching Lithium Contract

The London Metal Exchange (LME) has decided to join forces with Fastmarkets to develop a futures contract for lithium, the exchange announced on Monday (June 10).

The exchange spent 18 months looking for a partner for what will become the first lithium futures contract. The move is expected to bring more transparency to lithium prices, which have been under pressure in the past several months.

“In recent years there has been unprecedented price volatility in the lithium market, driven particularly by explosive electric vehicle (EV) battery demand,” LME Head of Market Development Robin Martin said in a press release.

“The LME has been approached by a number of industry players, including producers, end users and several leading automotive firms, to develop effective lithium price-risk management tools. We are delighted to be announcing the next step in that process today,” he added.

Last year, the LME requested proposals from several leading price reporting agencies with the objective of selecting the lithium market’s preferred price provider.

The exchange said it selected Fastmarkets as its pricing partner because its lithium prices are widely used across the industry, and because of its leading pricing capabilities. Fastmarkets also provides pricing for the LME’s cashed-settled cobalt contract.

The LME announcement came as a surprise to many market participants, but has been welcomed as one of the many tools needed to provide a better understanding of the lithium market.

For Tianqi Lithium (SZSE:002466) President Vivian Wu, the LME contract will help reduce lithium price volatility.

“It will give a real chance (for all players) to get a better understanding of the market,” she told reporters at a press briefing on Monday, adding that it will also help people make better investment decisions.

Also commenting on the news, Simon Moores, managing director of leading price provider Benchmark Mineral Intelligence, said he wholly disagrees with the exchange’s decision. Benchmark was also in the race to join forces with the LME.

“When the LME first began looking at lithium, the first organization they called was (Benchmark Mineral Intelligence),” Moores said.

“We set the lithium industry’s reference price that is used by major market participants to negotiate supply chain contracts … our focus is to continue formalizing these prices into contract benchmarks for active lithium buyers and sellers —  this has always been the primary goal of our price assessments.”

A date for the launch, which was originally set for the fourth quarter, has not been confirmed yet, but the LME said it will continue to work with its advisory group and other industry participants to gauge the appropriate timing for the introduction of its lithium contract.

The news came as the 11th Lithium Supply & Markets Conference kicked off in Santiago. The event will see industry participants discuss the future of the market, pricing and battery innovations.

Click here to watch our full Lithium Supply & Markets Conference playlist on YouTube.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.