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Lithium carbonate futures listed on the market to enhance the international pricing power of lithium resources
2023/7/21
On July 21, Guangzhou Futures Exchange (hereinafter referred to as "Guangzhou Futures Exchange") held a listing of lithium carbonate futures and options, and the second product of Guangzhou Futures Exchange, lithium carbonate futures, was officially listed for trading.
The listing of lithium carbonate futures is of far-reaching significance. The rapid development of the new energy industry has made lithium carbonate, an important material for power batteries of new energy vehicles, highly concerned by the market. Replacing petrochemical energy with lithium batteries is becoming a development trend sweeping the world. Lithium metal has also gradually changed from "industrial monosodium glutamate" to "white oil" and become one of the strategic metals.
However, in recent years, lithium prices have been operating at high levels and fluctuating violently, which has had a certain impact on the production and operation of related enterprises in the upstream and downstream industrial chains of the industry. Since many companies lack the means to actively manage product price fluctuations, the debut of lithium carbonate futures at this time is particularly important.
"The introduction of lithium carbonate futures and options marks that my country has expanded lithium resources from the spot field to the financial field, highlighting the key position of lithium resources as a national strategic resource." The relevant person in charge of the Guangzhou Futures Exchange told the author that the listing of lithium carbonate futures and options is conducive to improving the price formation mechanism of lithium carbonate and improving the transparency of lithium market prices; it is conducive to serving entities to balance the industrial ecological chain and promote the long-term development of the lithium industry; it is conducive to promoting the realization of the "double carbon" goal and coordinating the relationship between the development and safety of the new energy industry.
The listing of lithium carbonate futures is of great significance, as it is the first physically-delivered lithium carbonate futures in the world. In the context of global commodity financialization, the launch of lithium carbonate futures by Guangzhou Futures Exchange is an important breakthrough for my country to strive for the international pricing power of lithium resources, and will help the healthy development of my country's new energy industry in the context of intensified volatility in the global energy market.
Lithium carbonate is a common inorganic lithium salt and is the core raw material for the production of cathode materials for lithium batteries. Under the development trend of promoting energy transformation in my country, the new energy industry is developing rapidly, and lithium carbonate plays a pivotal role in it. It has gradually changed from "industrial monosodium glutamate" in the past to "white oil" and has become one of the strategic metal materials.
Statistics show that my country is the world's largest consumer of lithium carbonate. In 2022, the global consumption demand for lithium carbonate will total 622,000 tons, of which my country's consumption demand will be 505,000 tons, accounting for 81%. Based on the average price of 482,400 yuan per ton in 2022, the scale of my country's lithium carbonate consumption market is about 243.6 billion yuan.
With the vigorous development of my country's new energy industry and active global trade activities, the production and sales of lithium carbonate are also increasing day by day. However, the global trade of lithium carbonate is highly mobile, but a unified trade pricing mechanism has not yet been formed. Due to factors such as international trade policies, production costs, and changes in supply and demand, the price of lithium carbonate has fluctuated much higher than other power materials in the same period in recent years.
At present, the domestic trade of lithium carbonate mainly has three modes: loose trade, flexible trade, and long-term trade with quantitative pricing, accounting for about 70%, 20%, and 10% respectively, among which the loose trade of "locking volume but not price" is dominant.
Some people in the industry told the author, "Pricing in the spot market is actually based on quotations from some websites. There are problems such as untimely prices, opaque pricing mechanisms, and difficulty in fully participating in price formation." In addition, because the domestic lithium salt trade is dominated by loose trade that "locks volume but not price", that is, the two parties jointly agree on the actual delivery quantity and transaction price before each shipment. When prices fluctuate sharply, this type of trade often faces the risk of default.
Zhou Yongzhi, chairman and general manager of Yichun Silver Lithium New Energy Company, told the author, "At present, the company mainly adopts a trade model combining long-term orders and flexibility, and the main pricing model is to follow the market. The sharp fluctuations in lithium carbonate prices will directly affect the profitability of manufacturers. For the entire industry, it will lead to an imbalance between supply and demand and accelerate industry integration."
The data shows that the annual price fluctuations of lithium carbonate from 2020 to 2022 are 29.56%, 418.87%, and 104.14%, which are much higher than other raw materials in the same period. Reflected in the specific price, at the beginning of 2023, as the sales of new energy vehicles slowed down, the price of lithium carbonate fell from a historical high of 566,000 yuan/ton to 195,000 yuan/ton within four months, and then rose sharply again to about 300,000 yuan/ton in just one month.
The relevant person in charge of the Lithium Industry Branch of the China Nonferrous Metals Industry Association said, "The drop in the price of lithium carbonate will directly affect the profitability of lithium salt production enterprises. Some enterprises may suffer losses or even face the risk of bankruptcy. At the same time, price fluctuations also bring inventory pressure to enterprises, further increasing the operating pressure of enterprises."
The sharp fluctuations in the price of lithium carbonate have brought great risk exposure to production enterprises. As an important raw material in the upstream of the new energy automobile industry chain, the long-term healthy development of the industry is inseparable from a stable and controllable price system for raw materials. The price trend of battery-grade lithium carbonate is complicated, and upstream and downstream enterprises in the industrial chain urgently need corresponding financial instruments to avoid the risk of price fluctuations.
In the context of huge fluctuations in market prices, lithium carbonate futures and options will provide enterprises with important risk management tools. A lithium carbonate production company told the author: "Follow-up companies will increase the use of lithium carbonate futures and make full use of the functions of lithium carbonate futures price discovery and risk management."
Zhou Yongzhi believes that "the listing of lithium carbonate futures is conducive to preventing companies from excessively deviating from production plans and profit forecasts when prices fluctuate sharply, and has many positive meanings in serving the high-quality development of the lithium salt industry and helping the realization of the 'double carbon' goal." He further stated that after the listing of lithium carbonate futures, the company will mainly do hedging business.
The relevant person in charge of the Lithium Industry Branch of the China Nonferrous Metals Industry Association told the author, "During the cycle of rapid rise or fall in lithium prices, there is an uneven profit distribution between the upstream and downstream of the industrial chain. When prices rise, some upstream companies may benefit more, and when prices fall, some downstream companies benefit more. From the perspective of the entire lithium battery industry chain, only by maintaining relatively stable raw material market prices and reasonable profits in all links of the industrial chain can we ensure the stability and safety of the lithium battery industry chain supply chain and promote the sustainable development of the new energy vehicle industry."
Li Pan, a lithium industry analyst at the New Energy Division of Shanghai Steel Union, said that for enterprises, lithium carbonate futures contracts can be used for hedging operations, reducing capital costs and financing risks, thereby promoting the sustainable development of the upstream and downstream of the industrial chain. In addition, enterprises can plan lithium carbonate purchases and sales through the futures market, optimize inventory control, reduce inventory risks and capital occupation, and improve the operational efficiency of the entire industrial chain.
For the futures market and the real economy, on the one hand, lithium carbonate futures and options can provide tools for risk management and price discovery for lithium carbonate manufacturers and buyers and sellers, reducing the production and operation risks of enterprises. On the other hand, the production and trade of lithium carbonate involve many links and regions. The introduction of futures and options can promote the integration and standardized development of the lithium carbonate market, and further promote economic transformation and industrial upgrading.
What issues should be paid attention to when participating in lithium carbonate futures trading?
Luo Xufeng, chairman of Nanhua Futures, said, "Lithium carbonate upstream and downstream enterprises need to pay attention to issues such as risk management, market analysis, financial processing, and information disclosure when participating in transactions. Enterprises first need to assess their own risk tolerance, clarify their own risk management goals and objectives, and formulate corresponding risk management strategies. At the same time, enterprises need to pay attention to the impact of factors such as domestic and foreign policies and changes in supply and demand, analyze the dynamics of the lithium carbonate market, grasp market trends and price fluctuations, and formulate corresponding trading strategies."
Zhao Changtao, general manager of Huatai Futures, said, "Through interviews with upstream and downstream industrial customers, we found that industrial customers are actively participating in the listing of lithium carbonate futures, but at present customers are still relatively lacking in professional knowledge. Although some industrial customers participated in electronic trading in the early stage, the volume is still relatively small. After the listing of futures options, the trading volume and impact on the industry will be relatively large. If industrial customers want to participate, they need to learn professional knowledge, establish a system, team building and risk assessment management before participating. Futures companies can assist industrial customers to complete the above Work to help inexperienced industrial customers better use futures options for risk management."
Guangzhou Futures Exchange was established on April 19, 2021. It is the fifth futures exchange in China. With the purpose of serving green development, the construction of the Guangdong-Hong Kong-Macao Greater Bay Area and the "Belt and Road" initiative, it strives to create an innovative, market-oriented and international comprehensive exchange.
As the youngest futures exchange in my country, Guangzhou Futures Exchange is full of vigor and vitality. In December 2022, Guangzhou Futures Exchange listed the world's first industrial silicon futures, which is also the first new energy metal product in China. Only eight months later, Guangzhou Futures Exchange launched lithium carbonate futures options again, fully demonstrating the "Guangzhou Futures Exchange Speed".
After the listing of lithium carbonate futures, the rudiments of the new energy futures layout of Guangzhou Futures Exchange can be seen. In the next development plan, futures varieties with strong new energy colors such as polysilicon, lithium, rare earth, platinum, and palladium may be launched. Most of the related products are core raw materials in the upstream of the new energy industry chain. These futures products have achieved a huge breakthrough in variety innovation.
The relevant person in charge of the Lithium Industry Branch of the China Nonferrous Metals Industry Association said, "The listing of lithium carbonate futures will help lithium industry enterprises use market-oriented means to deal with risks, and has positive significance for stabilizing production, supply, and price stability. I hope that Guangzhou Futures will strengthen futures-related publicity and training in the lithium industry, guide more lithium industry enterprises to participate in futures trading in a standardized way, use the futures market to stabilize production and operation, enhance the resilience and vitality of the industrial chain, and promote the high-quality development of the lithium industry."
At present, the lithium futures products that have been listed in the world are mainly lithium carbonate and lithium hydroxide. The products listed on the Chicago Mercantile Exchange (CME) and the London Metal Exchange (LME) are lithium hydroxide; and the Singapore Exchange (SGX) will list lithium hydroxide futures and lithium carbonate futures in September 2022.
Xu Yanwei, general manager of GF Futures, said, "The biggest difference between the Lithium Carbonate Futures of the Guangzhou Futures Exchange and the overseas varieties is that the Lithium Carbonate Futures of the Guangzhou Futures Exchange is the underlying product of the futures and adopts the physical delivery model, while several overseas lithium futures products are linked to the three-party quotation settlement and operate in the cash delivery model. Therefore, the lithium carbonate futures of the Guangzhou Futures Exchange have actual spot basis. In terms of price discovery function, it is more sensitive to the price of domestic lithium carbonate spot market transactions, and it is closer to the spot trade situation. Enterprises can also play greater value in the actual process of hedging.”
In addition, Xu Yanwei further pointed out that the current pricing power of lithium resources does not match my country's lithium resource trade status. Especially in the case of spodumene resources mainly overseas, my country's lithium resources currently do not have strong bargaining power. Listed lithium carbonate plays an important role in strengthening the pricing influence of the lithium industry. On the one hand, after the listing of lithium carbonate futures, it can provide the global market with a price anchor in the lithium carbonate market, which is expected to promote industrial enterprises to use RMB-denominated lithium carbonate futures as a pricing benchmark in international trade. On the other hand, the listing of lithium carbonate futures can introduce foreign traders to participate in the domestic lithium carbonate market, activate the internationalization of the domestic industrial chain, and at the same time attract international resources to cooperate with my country's industrial resources, which will also help strengthen my country's pricing influence in the international lithium industry.
The listing of lithium carbonate futures is of far-reaching significance. The rapid development of the new energy industry has made lithium carbonate, an important material for power batteries of new energy vehicles, highly concerned by the market. Replacing petrochemical energy with lithium batteries is becoming a development trend sweeping the world. Lithium metal has also gradually changed from "industrial monosodium glutamate" to "white oil" and become one of the strategic metals.
However, in recent years, lithium prices have been operating at high levels and fluctuating violently, which has had a certain impact on the production and operation of related enterprises in the upstream and downstream industrial chains of the industry. Since many companies lack the means to actively manage product price fluctuations, the debut of lithium carbonate futures at this time is particularly important.
"The introduction of lithium carbonate futures and options marks that my country has expanded lithium resources from the spot field to the financial field, highlighting the key position of lithium resources as a national strategic resource." The relevant person in charge of the Guangzhou Futures Exchange told the author that the listing of lithium carbonate futures and options is conducive to improving the price formation mechanism of lithium carbonate and improving the transparency of lithium market prices; it is conducive to serving entities to balance the industrial ecological chain and promote the long-term development of the lithium industry; it is conducive to promoting the realization of the "double carbon" goal and coordinating the relationship between the development and safety of the new energy industry.
The listing of lithium carbonate futures is of great significance, as it is the first physically-delivered lithium carbonate futures in the world. In the context of global commodity financialization, the launch of lithium carbonate futures by Guangzhou Futures Exchange is an important breakthrough for my country to strive for the international pricing power of lithium resources, and will help the healthy development of my country's new energy industry in the context of intensified volatility in the global energy market.
Lithium carbonate is a common inorganic lithium salt and is the core raw material for the production of cathode materials for lithium batteries. Under the development trend of promoting energy transformation in my country, the new energy industry is developing rapidly, and lithium carbonate plays a pivotal role in it. It has gradually changed from "industrial monosodium glutamate" in the past to "white oil" and has become one of the strategic metal materials.
Statistics show that my country is the world's largest consumer of lithium carbonate. In 2022, the global consumption demand for lithium carbonate will total 622,000 tons, of which my country's consumption demand will be 505,000 tons, accounting for 81%. Based on the average price of 482,400 yuan per ton in 2022, the scale of my country's lithium carbonate consumption market is about 243.6 billion yuan.
With the vigorous development of my country's new energy industry and active global trade activities, the production and sales of lithium carbonate are also increasing day by day. However, the global trade of lithium carbonate is highly mobile, but a unified trade pricing mechanism has not yet been formed. Due to factors such as international trade policies, production costs, and changes in supply and demand, the price of lithium carbonate has fluctuated much higher than other power materials in the same period in recent years.
At present, the domestic trade of lithium carbonate mainly has three modes: loose trade, flexible trade, and long-term trade with quantitative pricing, accounting for about 70%, 20%, and 10% respectively, among which the loose trade of "locking volume but not price" is dominant.
Some people in the industry told the author, "Pricing in the spot market is actually based on quotations from some websites. There are problems such as untimely prices, opaque pricing mechanisms, and difficulty in fully participating in price formation." In addition, because the domestic lithium salt trade is dominated by loose trade that "locks volume but not price", that is, the two parties jointly agree on the actual delivery quantity and transaction price before each shipment. When prices fluctuate sharply, this type of trade often faces the risk of default.
Zhou Yongzhi, chairman and general manager of Yichun Silver Lithium New Energy Company, told the author, "At present, the company mainly adopts a trade model combining long-term orders and flexibility, and the main pricing model is to follow the market. The sharp fluctuations in lithium carbonate prices will directly affect the profitability of manufacturers. For the entire industry, it will lead to an imbalance between supply and demand and accelerate industry integration."
The data shows that the annual price fluctuations of lithium carbonate from 2020 to 2022 are 29.56%, 418.87%, and 104.14%, which are much higher than other raw materials in the same period. Reflected in the specific price, at the beginning of 2023, as the sales of new energy vehicles slowed down, the price of lithium carbonate fell from a historical high of 566,000 yuan/ton to 195,000 yuan/ton within four months, and then rose sharply again to about 300,000 yuan/ton in just one month.
The relevant person in charge of the Lithium Industry Branch of the China Nonferrous Metals Industry Association said, "The drop in the price of lithium carbonate will directly affect the profitability of lithium salt production enterprises. Some enterprises may suffer losses or even face the risk of bankruptcy. At the same time, price fluctuations also bring inventory pressure to enterprises, further increasing the operating pressure of enterprises."
The sharp fluctuations in the price of lithium carbonate have brought great risk exposure to production enterprises. As an important raw material in the upstream of the new energy automobile industry chain, the long-term healthy development of the industry is inseparable from a stable and controllable price system for raw materials. The price trend of battery-grade lithium carbonate is complicated, and upstream and downstream enterprises in the industrial chain urgently need corresponding financial instruments to avoid the risk of price fluctuations.
In the context of huge fluctuations in market prices, lithium carbonate futures and options will provide enterprises with important risk management tools. A lithium carbonate production company told the author: "Follow-up companies will increase the use of lithium carbonate futures and make full use of the functions of lithium carbonate futures price discovery and risk management."
Zhou Yongzhi believes that "the listing of lithium carbonate futures is conducive to preventing companies from excessively deviating from production plans and profit forecasts when prices fluctuate sharply, and has many positive meanings in serving the high-quality development of the lithium salt industry and helping the realization of the 'double carbon' goal." He further stated that after the listing of lithium carbonate futures, the company will mainly do hedging business.
The relevant person in charge of the Lithium Industry Branch of the China Nonferrous Metals Industry Association told the author, "During the cycle of rapid rise or fall in lithium prices, there is an uneven profit distribution between the upstream and downstream of the industrial chain. When prices rise, some upstream companies may benefit more, and when prices fall, some downstream companies benefit more. From the perspective of the entire lithium battery industry chain, only by maintaining relatively stable raw material market prices and reasonable profits in all links of the industrial chain can we ensure the stability and safety of the lithium battery industry chain supply chain and promote the sustainable development of the new energy vehicle industry."
Li Pan, a lithium industry analyst at the New Energy Division of Shanghai Steel Union, said that for enterprises, lithium carbonate futures contracts can be used for hedging operations, reducing capital costs and financing risks, thereby promoting the sustainable development of the upstream and downstream of the industrial chain. In addition, enterprises can plan lithium carbonate purchases and sales through the futures market, optimize inventory control, reduce inventory risks and capital occupation, and improve the operational efficiency of the entire industrial chain.
For the futures market and the real economy, on the one hand, lithium carbonate futures and options can provide tools for risk management and price discovery for lithium carbonate manufacturers and buyers and sellers, reducing the production and operation risks of enterprises. On the other hand, the production and trade of lithium carbonate involve many links and regions. The introduction of futures and options can promote the integration and standardized development of the lithium carbonate market, and further promote economic transformation and industrial upgrading.
What issues should be paid attention to when participating in lithium carbonate futures trading?
Luo Xufeng, chairman of Nanhua Futures, said, "Lithium carbonate upstream and downstream enterprises need to pay attention to issues such as risk management, market analysis, financial processing, and information disclosure when participating in transactions. Enterprises first need to assess their own risk tolerance, clarify their own risk management goals and objectives, and formulate corresponding risk management strategies. At the same time, enterprises need to pay attention to the impact of factors such as domestic and foreign policies and changes in supply and demand, analyze the dynamics of the lithium carbonate market, grasp market trends and price fluctuations, and formulate corresponding trading strategies."
Zhao Changtao, general manager of Huatai Futures, said, "Through interviews with upstream and downstream industrial customers, we found that industrial customers are actively participating in the listing of lithium carbonate futures, but at present customers are still relatively lacking in professional knowledge. Although some industrial customers participated in electronic trading in the early stage, the volume is still relatively small. After the listing of futures options, the trading volume and impact on the industry will be relatively large. If industrial customers want to participate, they need to learn professional knowledge, establish a system, team building and risk assessment management before participating. Futures companies can assist industrial customers to complete the above Work to help inexperienced industrial customers better use futures options for risk management."
Guangzhou Futures Exchange was established on April 19, 2021. It is the fifth futures exchange in China. With the purpose of serving green development, the construction of the Guangdong-Hong Kong-Macao Greater Bay Area and the "Belt and Road" initiative, it strives to create an innovative, market-oriented and international comprehensive exchange.
As the youngest futures exchange in my country, Guangzhou Futures Exchange is full of vigor and vitality. In December 2022, Guangzhou Futures Exchange listed the world's first industrial silicon futures, which is also the first new energy metal product in China. Only eight months later, Guangzhou Futures Exchange launched lithium carbonate futures options again, fully demonstrating the "Guangzhou Futures Exchange Speed".
After the listing of lithium carbonate futures, the rudiments of the new energy futures layout of Guangzhou Futures Exchange can be seen. In the next development plan, futures varieties with strong new energy colors such as polysilicon, lithium, rare earth, platinum, and palladium may be launched. Most of the related products are core raw materials in the upstream of the new energy industry chain. These futures products have achieved a huge breakthrough in variety innovation.
The relevant person in charge of the Lithium Industry Branch of the China Nonferrous Metals Industry Association said, "The listing of lithium carbonate futures will help lithium industry enterprises use market-oriented means to deal with risks, and has positive significance for stabilizing production, supply, and price stability. I hope that Guangzhou Futures will strengthen futures-related publicity and training in the lithium industry, guide more lithium industry enterprises to participate in futures trading in a standardized way, use the futures market to stabilize production and operation, enhance the resilience and vitality of the industrial chain, and promote the high-quality development of the lithium industry."
At present, the lithium futures products that have been listed in the world are mainly lithium carbonate and lithium hydroxide. The products listed on the Chicago Mercantile Exchange (CME) and the London Metal Exchange (LME) are lithium hydroxide; and the Singapore Exchange (SGX) will list lithium hydroxide futures and lithium carbonate futures in September 2022.
Xu Yanwei, general manager of GF Futures, said, "The biggest difference between the Lithium Carbonate Futures of the Guangzhou Futures Exchange and the overseas varieties is that the Lithium Carbonate Futures of the Guangzhou Futures Exchange is the underlying product of the futures and adopts the physical delivery model, while several overseas lithium futures products are linked to the three-party quotation settlement and operate in the cash delivery model. Therefore, the lithium carbonate futures of the Guangzhou Futures Exchange have actual spot basis. In terms of price discovery function, it is more sensitive to the price of domestic lithium carbonate spot market transactions, and it is closer to the spot trade situation. Enterprises can also play greater value in the actual process of hedging.”
In addition, Xu Yanwei further pointed out that the current pricing power of lithium resources does not match my country's lithium resource trade status. Especially in the case of spodumene resources mainly overseas, my country's lithium resources currently do not have strong bargaining power. Listed lithium carbonate plays an important role in strengthening the pricing influence of the lithium industry. On the one hand, after the listing of lithium carbonate futures, it can provide the global market with a price anchor in the lithium carbonate market, which is expected to promote industrial enterprises to use RMB-denominated lithium carbonate futures as a pricing benchmark in international trade. On the other hand, the listing of lithium carbonate futures can introduce foreign traders to participate in the domestic lithium carbonate market, activate the internationalization of the domestic industrial chain, and at the same time attract international resources to cooperate with my country's industrial resources, which will also help strengthen my country's pricing influence in the international lithium industry.
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