FINANCE FORUM
demand,” says LME head of market development Robin Martin. “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,” he says.
According to LME it chose Fastmarkets as its pricing partner due to the already
widespread use of the latter’s lithium prices. “Due to its chemical nature, lithium
is not suitable for a physically-delivered contract, and hence the LME, together
with its advisory group, believe that partnership with a price reporting agency
represents the best route to a tradeable contract,” the exchange stated.
“This global strategic partnership will develop a definitive roadmap aimed
at providing a pricing mechanism for lithium that can be utilised throughout
the supply chain,” Fastmarkets stated. LME and Fastmarkets will spend the
coming months jointly promoting the lithium industry’s transition towards
reference pricing. The Fastmarkets lithium prices are expected to be made
freely available through LME’s website.
Lithium producers reject plan
However, the world’s largest lithium producer, New York-listed Albemarle
Corp, is not convinced by the idea. Ablemarle head of corporate strategy
and investor relations, David Ryan, told attendees at the Fastmarkets Lithium
Supply and Markets Conference in Chile recently that the company would
not be contributing its pricing data to the index at this point. “An exchange
contract tends to support a commodity market, and that’s not what we
believe this [lithium market] is,” said Ryan. Other established producers have
stated that they believe lithium is a specialty chemicals market that should
be priced on a contract-by-contract basis.
“The challenge of the index is to try to have very good representation of the
market, which I really feel is not possible today because of how the lithium
industry works,” SQM vice president of lithium and iodine, Pablo Altimiras,
who spoke alongside Mr Ryan on a panel at the conference, said.
Another panel member representing rival producer Tianqi Lithium Corp
agreed that lithium is not a true commodity.
New cash-settled cobalt contract
Fastmarkets already provides the global benchmark for the cobalt market,
another key raw material used in EV batteries.
The LME launched a physically-settled LME cobalt contract in 2010 but in
2014, market participants were still debating over whether to base cobalt
contract prices on the LME, with critics arguing that the industry was too
small to justify an effective terminal exchange contract. Trading volumes and
stocks have since grown, boosted by the EV and battery industry boom.
This rise in demand for battery metals has also resulted in a growing appetite
for a cash-settled contract, which LME consequently launched in March 2019.
This new contract complements LME’s existing physically-settled offering
and is settled against the Fastmarkets MB Standard Grade index. The main
differences between the two contracts are the settlement structure, settlement
price and prompt date structure. “Cash settlement is a method used in certain
futures and options contracts where, upon expiration or exercise, the seller of
the financial instrument does not deliver the actual physical underlying asset
but instead transfers the associated cash position,” LME stated.
It explained that cash settlement was a more convenient method of
transacting futures and options contracts for sellers who don’t want to take
actual possession of the underlying cash commodity. “Cash settlement is
also preferred by financial investors who bring additional liquidity reducing
the bid-offer spread, thus lowering the cost of trading,” it said.
This article was first published on Smallcaps.com.au
ABOUT THE AUTHOR
Danica Cullinane has extensive experience writing and editing business news
in the Oceanic and Southeast Asian regions. She has written across a range of
industries including oil and gas, mining, energy, science and research, retail
and travel. Danica has covered small and large cap companies listed on the
Australian, Singapore, Hong Kong, Indian, London and Toronto exchanges.
According to Reuters, the LME said it respected the right of companies to
operate however best suits their needs.
“The LME continues to work with a supportive group of industry participants
to develop solutions for the lithium industry and will
launch a contract when those participants are
ready to use it,” LME spokesperson Bianca
Blake said.
www. africanmining.co.za
African Mining Publication
“In recent years there has
been unprecedented price
volatility in the lithium market,
driven particularly by explosive
electric vehicle battery demand.
African Mining
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