Lithium consumers, including battery makers, will welcome introduction of a lithium price contract as now planned by the London Metal Exchange, as this could help boost price transparency, Robert Baylis, an analyst with research firm Roskill, said Tuesday.
"Introduction of a contract price is an attempt to make the market fair," Baylis said. "Lithium prices are currently set by producers, who are reacting to market conditions which are currently tight," the analyst said in an interview after a meeting on battery metals organized by Roskill in London during LME Week.
The LME announced Monday that working closely with the battery and electric vehicles industries, it will look to build out its suite of contracts in 2018 with the addition of contracts for cobalt sulphate, lithium, and potentially a chemical nickel contract, "to bring price risk management to this rapidly growing market."
While lithium consumers will be "happy to have a hedgeable product which the LME could enable, to de-risk the product through hedging," liquidity would be needed on a contract if a fair market price is to be created, Baylis said.
"The industry still needs to be convinced: we need two-way trade," he said.
Lithium prices have doubled over the past two years on average amid a race to source raw materials for production of lithium-ion batteries to supply the growing electric vehicles sector.
Prices of lithium carbonate sold on 1-5 year contracts, representing some 40% of the market, are now around $10-12/kg. Prices for contracts of 1 year or less, accounting for 30% of the market, are at $12-15/kg and spot prices, accounting for 10% of the market, are put at $15-30/kg, according to Roskill research.
However, the market tightness in China is easing slightly and prices should peak this year or early next due to new production coming on stream, Baylis said.
