CME Group Launches Futures on Spodumene: A New Step in the Competition for Lithium Markets

The CME Group has introduced contracts that track the price of raw materials for lithium batteries, thereby intensifying its rivalry with the London Metal Exchange for dominance in the global battery metals market. On Monday, the US exchange announced that it plans to introduce futures on spodumene, the rock type from which lithium chemicals for electric vehicle batteries are derived. This move opens a new front as the world's largest commodity exchanges compete to become the main venue for producers and mining operators to trade battery metals, amid sustained demand growth driven by new technologies such as electric vehicles. So far, lithium futures contracts offered in London, Chicago, Guangzhou, and Singapore were limited to processed forms of lithium like lithium hydroxide and lithium carbonate, which are essential components of electric vehicle batteries and industrial processing. Spodumene is a lithium-rich rock primarily mined in Australia. Most lithium processing takes place in China, and the prices for downstream chemicals like lithium hydroxide often correlate with prices for spodumene rock. Jin Hennig, global head of metals at CME Group, said: "We are confident that battery metals will be critical minerals of the future and that demand will sustainably increase." The move by the US group highlights how exchanges are trying to attract more clients by offering futures that hedge against various stages of the global lithium supply chain. Prices for lithium chemicals have fluctuated significantly over the past two years, initially rising sharply due to demand for electric vehicles and then falling due to an oversupply of lithium production and a slowdown in EV growth. CME and LME launched their first lithium hydroxide contracts in 2021, with the Singapore exchange following suit the next year with its own futures. However, CME leads in contracts like lithium hydroxide and cobalt compared to LME. The primary beneficiaries of the new spodumene contract are likely to be producers in Australia, the world's largest mining site of the lithium-containing ore. CME's cash-settled spodumene futures contract is scheduled to be launched on October 28, pending regulatory approval, and is based on an assessment of spodumene delivered to China by Fastmarkets, a commodity data company. Przemek Koralewski, head of market development at Fastmarkets, said CME is securing market share for its battery metal contracts compared to LME. The trading volume of CME's lithium hydroxide contract has increased by more than 700 percent in the first eight months of this year compared to the same period last year. "The opportunity is enormous, which is why several exchanges are competing in this space," said Koralewski, adding that with the growth of the lithium market, its market structure could become more like the oil market, where the value of traded derivatives is many times higher than the sales value of the physical product. Industry analysts have pointed out possible parallels between the lithium market and the iron ore market, which was largely traded through annual fixed-price contracts until 2010. With the rise in iron ore demand in China, the annual contract system collapsed, and the trading and hedging of iron ore with futures subsequently exploded. Currently, lithium hydroxide remains primarily a physical market, with derivatives accounting for only 13 percent of the physical market for lithium hydroxide, noted Koralewski.