The LME wants clear lithium pricing. Here’s why that could be a big deal for explorers
The London Metals Exchange will partner price reporting agency Fastmarkets to launch a new lithium futures contract.
It’s an important move for the sector. The LME hopes that its vision for exchange traded lithium will lead to deeper liquidity on the spot market and clearer pricing so that larger lenders — like banks — are more comfortable investing in new mining and processing operations.
In recent years there has been unprecedented price volatility in the lithium market, driven particularly by explosive electric vehicle battery demand, says LME head of market development Robin Martin.
It hasn’t helped that lithium contracts are ultimately decided between buyer and seller behind closed doors. And it’s not as simple as asking ‘what’s the price of lithium?’ either, because there are numerous product categories adding another layer of complexity.
Commercial banks, Australian banks in particular, have shown an unwillingness to risk big dollars on such an opaque market.
“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,” Martin says.
“We are delighted to be announcing the next step in that process today.”
In 2018, the LME requested proposals from several leading price reporting agencies – Benchmark Minerals Intelligence, Argus, and Fastmarkets — with the objective of selecting the lithium market’s preferred price provider.
“The LME, on the basis of market views, selected Fastmarkets as its pricing partner due to their lithium prices being widely used across the industry combined with their leading pricing capabilities,” the LME said.
The LME will continue to work with its advisory group and other industry participants to gauge appropriate timing for launch of a lithium contract.
But Fastmarkets was a controversial choice.
What a mistake. They went with the “safe” choice–a group that has no native expertise in Lithium. When in human history has the safe choice been the right choice? This could lead to more Li pricing confusion, not less. Should have been Benchmark. https://t.co/ovKEa1ACun
— Sam Jaffe (@samjaffe) June 10, 2019
Benchmark Minerals Intelligence was considered by many to be the lithium contract frontrunner because, unlike Fastmarkets, its focus has always been the lithium ion battery to EV supply chain.
Benchmark respects but “wholly disagrees” with LME’s decision, managing director Simon Moores says.
“When the LME first began looking at lithium, the first organisation they called was us,” says Moores.
“As a result, we have been part of their lithium process well before other Price Reporting Agencies (PRA) either launched lithium price coverage or ramped up existing neglected prices – many of which were given away for free to the market.
“To provide truly reflective lithium pricing, you need a global team dedicated to analysing and understanding the market. It is clear we have the only team in the world that meets this criteria.”