Lithium carbonate futures approved; to help hedge against price volatility

The Guangzhou Futures Exchange (GFE) announced on Tuesday the approval of contracts and trading details of lithium carbonate futures and options, which experts said will provide a much-needed guarantee for stable prices and contribute to the industry's sustainable development.

The introduction of these trading instruments will also encourage lithium carbonate producers to expand production and global cooperation, as they can help hedge against risks and ensure stable business operations, they added.

The move came after the China Securities Regulatory Commission greenlighted the registration of lithium carbonate futures and options on the GFE, which was announced on Friday.

Lithium carbonate is a lithium salt product with extensive downstream applications. It is a core raw material for batteries used in areas such as electric vehicles and energy storage.

As the rapidly growing EV industry drives up demand for lithium batteries, an increasing number of lithium companies are expanding their global footprint.

Lin Boqiang, head of the China Institute for Studies in Energy Policy at Xiamen University, said that lithium mining is a capital-intensive industry with large-scale project construction, long production cycles, and high investment risks, especially amid price volatility.

Shanghai Metals Market, an online information provider, said the price of lithium carbonate was around 280,000 yuan ($38,873) per metric ton at the beginning of 2022. The price continuously increased to a record high of some 600,000 yuan per ton in November, and then started to decline rapidly. In April, the price fell below 180,000 yuan per ton before beginning a rising trend and reaching about 308,700 yuan per ton on Tuesday.

Shanghai Securities News reported that in recent years, spot prices for lithium carbonate have taken a rollercoaster ride with a volatility range of 418.87 percent in 2021.

The significant fluctuations in lithium carbonate prices have led companies in the sector to urgently seek risk-hedging tools. GFE said that the introduction of lithium carbonate futures and options can provide a guarantee of price stability for mining enterprises and secure their future profitability.

Experts said the futures prices can efficiently, promptly and dynamically reflect supply and demand conditions in the lithium salt market.

Liang Chuting, assistant manager of commodities at GFE, said that lithium carbonate futures can provide price references for companies' production and purchasing decisions. Additionally, they can serve as risk management tools for companies to hedge against price fluctuations.

Several enterprises, including Ganfeng Lithium, announced in statements that they would apply for warehouses designated by GFE for lithium carbonate trading.

Ganfeng said the move will be beneficial for the organic integration of the spot market, futures market and trading warehouses. It will further enhance the company's ability to hedge against risks and raise market competitiveness, thereby increasing profitability.

EV battery maker Sunwoda Electronic said that futures, options and other trading tools for lithium carbonate can effectively hedge against risks faced by enterprises and help them achieve stable and robust operations. The company said it will keep track of the progress of these trading instruments and participate when suitable.