Lithium coming of age as LME launches futures contract
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The lithium market is heading into a potential bull run driven by rising demand from battery and electric vehicle makers.
But it is also edging towards maturity, with the growing realisation that lithium is not just a trend but a key ingredient in the decarbonisation paradigm gathering pace across the world.
Another sign of the coming of age for the battery mineral arrived this week with the launch of a derivatives contract by the London Metals Exchange.
It is the second major commodities exchange to launch a lithium hydroxide contract after America’s CME, both using Fastmarkets’ price indexes out of China, Japan and Korea.
The contracts mark an important milestone for the sector, which is recovering from its most recent downturn in 2018, with prices up this year by 101% for battery grade carbonate and 85.7% for hydroxide.
Futures contracts allow investors to trade in the market and allow producers and customers to manage price risk like they can in other commodities.
“The LME has been working collaboratively with lithium market participants, across the globe, for over three years to gain an in-depth understanding into the commercial and technical nuances of an industry that is still in the preliminary stages of its maturation,” Tianqi lithium sales director and LME lithium committee chair Ron Mitchell said.
“The launch of the lithium hydroxide cash-settled futures contract represents a significant milestone not only for the LME but also for the global lithium industry.
“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.”
The lithium contract is part of a suite of sustainability focused contracts launched this week by the LME.
Cash-settled futures are also available for aluminium scrap, north-west Europe hot rolled coil, scrap steel out of Taiwan and India, and premium duty paid European aluminium.
Major lithium stocks were all up yesterday, with Pilbara Minerals (ASX:PLS), the top performer in the ASX200.
Project developers were also up, and are looking at a more stable environment for new projects than a few years ago when mines like Altura’s Pilgangoora and Alita’s Bald Hill opened to great fanfare only to collapse as spodumene prices nosedived.
Liontown Resources (ASX:LTR) last week raised $53 million to progress its world class Kathleen Valley mine near Leinster in WA.
It plans to be in production by mid-2024, a year earlier than initially planned, with the Tim Goyder-chaired Liontown also working on a PFS to produce downstream products such as lithium hydroxide.
Liontown was up 3.9% yesterday and 88.1% year to date.
Firefinch (ASX:FFX) is another developer up around 110% YTD, and has Chinese giant Ganfeng onside to raise $194 million of debt and equity as a 50-50 partner in the Goulamina lithium mine in Mali.
The company also owns the large Morila gold mine in the same part of the world, and is spinning its share of Goulamina into a pure play lithium company that will be fully exposed to the electric vehicle thematic.
Goulamina will produce 436,000tpa of spodumene over a 23-year mine life.