Lithium futures - a new business
Trading started in 2021
Photo credit: Grok’s imagined lithium traders
I was curious about the news articles saying lithium ion battery prices have come down. I have heard that the world’s supply of lithium is not enough to keep up with demand. I went looking for information on lithium markets. I turned Grok loose on the task. (In other places I found that yes, indeed, lithium prices have come down.)
Grok found three products with published market prices and trading of futures. They are
Lithium Hyrdroxide, more specifically lithium hydroxide monohydrate, 56.5%,
a battery grade
Lithium Carbonate 99.5% purity, a battery grade
Spudomene, which I would call lithium ore
My prompt to Grok:
What are the grades of lithium traded on futures markets?
Grok’s summary of published information:
“The grades of lithium traded on futures markets are primarily battery-grade lithium compounds, specifically lithium hydroxide and lithium carbonate, along with spodumene, a key lithium-bearing mineral. These are standardized for trading on major exchanges like the CME Group, London Metal Exchange (LME), Singapore Exchange (SGX), and Guangzhou Futures Exchange (GFEX). Below are the details:
Lithium Hydroxide:
Grade: Lithium hydroxide monohydrate, minimum 56.5% LiOH·H2O, battery-grade.
Specification: Spot price assessed for delivery CIF (Cost, Insurance, Freight) to China, Japan, and South Korea (CJK), as per Fastmarkets’ benchmark (code MB-LI-0033).
Exchanges: Traded on CME Group (since May 2021), LME (since July 2021), and SGX (since September 2022). Also available as options on CME.
Settlement: Cash-settled, based on the monthly average of Fastmarkets’ weekly price assessments during the contract month.
Lithium Carbonate:
Grade: Lithium carbonate, minimum 99.5% purity, battery-grade.
Specification: Spot price assessed for delivery CIF to China, Japan, and South Korea, or in China’s domestic market (e.g., GFEX focuses on 99.5% lithium carbonate).
Exchanges: Traded on CME Group, SGX, and GFEX (launched July 2023). GFEX contracts are physically settled, primarily for Chinese firms, though overseas firms can access via local brokers.
Settlement: CME and SGX contracts are cash-settled against Fastmarkets’ assessments, while GFEX involves physical delivery.
Spodumene:
Grade: Spodumene concentrate, typically 6% Li2O (lithium oxide) content.
Specification: Assessed CIF China, based on Fastmarkets’ price assessments. Spodumene is a raw material processed into lithium chemicals, and its futures reflect its role in the lithium supply chain.
Exchanges: CME Group launched Spodumene CIF China (Fastmarkets) futures on October 28, 2024.
Settlement: Cash-settled, converging to Fastmarkets’ spot price at expiry.
Key Notes:
Standardization Challenges: Lithium products vary chemically, unlike standardized commodities like copper. Futures markets rely on Fastmarkets’ indices to ensure convergence with spot prices, addressing the diversity of lithium grades.
Market Dynamics: Lithium futures emerged to manage price volatility driven by electric vehicle demand. Traded volumes and open interest have grown, with CME’s lithium hydroxide futures seeing significant activity (e.g., 20,307 metric tons traded in 2023).
Regional Focus: GFEX dominates in China with high speculative volumes, while CME leads globally for cash-settled contracts, attracting hedgers and financial institutions.
These grades—battery-grade lithium hydroxide (56.5% min), lithium carbonate (99.5% min), and spodumene (6% Li2O)—are the primary forms traded on futures markets, reflecting their critical role in battery production. For real-time prices or specific contract details, check exchange websites like cmegroup.com or fastmarkets.com.”
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