SGX set to unveil EV metals futures

Demand for battery minerals expanding rapidly

“The benefit of this over futures contracts for miners is that it increasingly results in direct equity investment in extraction operations.” Martin Jackson

SINGAPORE: Singapore Exchange (SGX) is set to launch its first lithium and cobalt contracts, adding to efforts by commodity exchanges to get battery materials companies and investors interested in using futures.

SGX is due to kick off trading in two lithium and two cobalt contracts.

The London Metal Exchange (LME) and CME Group Inc already offer futures for both metals, although trading liquidity is still far below established commodities contracts.

Demand for battery minerals is expanding rapidly as the global auto industry accelerates a push toward electric vehicles, triggering big price swings.

A global index of lithium prices has more than quadrupled in the past year, while Chinese lithium carbonate just hit a fresh record last week.

While unprecedented price spikes have sparked calls for greater transparency in pricing, analysts have pointed to hurdles for contracts to gain traction – from the relative

complexity of the markets, to a greater reliance on long-term supply deals that contrain spot trading.

“In the case of lithium, miners and lithium converters often tie their volumes to longterm contracts,” said Leah Chen, analyst at S&P Global Commodity Insights.

“Without the physical delivery of cargoes, it will be a paper market and there may be the risk of it falling into the space of speculation without providing the security from hedging.”

The SGX is launching four contracts: battery-grade lithium carbonate and lithium hydroxide, plus cobalt metal and cobalt hydroxide.

Open interest on both the CME and LME lithium hydroxide contracts was at zero as of Sept 22. As higher raw materials prices raise battery costs and threaten the pace of electric vehicle or EV adoption, automakers and battery manufacturers have been trying to lock in future supplies of minerals amid fears of a deepening shortage.

That includes offtake deals and multi-year supply partnerships between upstream and downstream companies.

“The benefit of this over futures contracts for miners is that it increasingly results in direct equity investment in extraction operations,” said Martin Jackson, senior analyst at CRU Group.

“As long as that spot market remains the minority of traded material, liquidity will limit the potential of futures trading.”