The Singapore Exchange (SGX) is reportedly set to offer its first lithium and cobalt contracts, further adding to commodity exchanges' efforts to entice battery material firms and investors to use futures.
Two cobalt and two lithium contracts will start trading on SGX on Monday. Both the metals already have their futures available through the London Metal Exchange (LME) and CME Group, but trading liquidity is still significantly lower than that of well-established commodities contracts.
As the global auto industry intensifies its push toward electric vehicles (EVs), the demand for battery materials is rising quickly, resulting in significant price swings. While in the last year, the global index of lithium pricing nearly quadrupled, Chinese lithium carbonate reached a new high this week.
While calls for increased pricing transparency have been driven by extraordinary price increases, analysts have noted obstacles standing in the way, including the relative complexity of the markets and a higher reliance on long-term supply agreements that limit spot trading.
To cite an example, Ms. Leah Chen, an analyst at S&P Global Commodity Insights, noted that in the case of lithium, converters and miners frequently tie their volumes to long-term deals. It will be a paper market without the actual physical delivery of goods, and there may be a potential risk of it slipping into the realm of speculation without offering assurance from hedging.
Four new contracts are being introduced by SGX on Monday: cobalt metal, battery-grade lithium carbonate, cobalt hydroxide, and lithium hydroxide.
As of September 22, there was no open interest in either the CME or LME contracts for lithium hydroxide.
Carmakers and battery makers have been scrambling to lock in the future supply of minerals amidst rising fears of a worsening shortage as increased raw material prices drive up battery costs and slow the rate of EV adoption. Offtake agreements and long-term supply agreements between downstream and upstream firms are included in this.
Source credit: https://www.straitstimes.com/business/companies-markets/singapore-exchange-follows-global-rivals-with-launch-of-ev-metals-futures