Lithium Futures Designs Are Released, Which Designate Main Production And Marketing Areas To Implement Physical Settlement

Lithium Futures Designs Are Released, Which Designate Main Production And Marketing Areas To Implement Physical Settlement

Domestic lithium futures designs are released, designating 3 main lithium resource production areas and 6 main marketing areas to implement physical settlement. Guangzhou Futures Exchange plans to finish contract rules design and delivery standards of lithium carbonate futures, and promote the listing as soon as possible.

Guo Chenguang, Executive Manager from Commodity Business Department of Guangzhou Futures Exchange, introduced the designs of lithium carbonate futures on China Lithium Industry Conference convened on July, 27, 2022. He introduced that battery-grade lithium carbonate will be deemed as benchmark deliverable, and industry-grade lithium carbonate will be deemed as substitute deliverable. With regard to quality indicators, in addition to the content of lithium, the major composition, we also need to pay attention to the content of other metals, such as potassium, calcium, sodium and magnesium, so as to satisfy purchasing requirements from downstream cathode material companies.

Guo Chenguang also indicated that upstream and downstream sections of the entire lithium battery industry chain are developing fast, and obvious price fluctuations will lead to some risks in industry chain. Futures can help companies in terms of price finding and guiding and risk management

Since 2021, sales volume of NEV has been rising rapidly globally. As the raw material for power battery, lithium resource end failed to handle the rapid growth in due course, leading to lithium price soaring exponentially, even achieving as high as RMB 500000/ton in this March, for a short period. On July, 27, domestic lithium price was RMB 47250000/ton, rising by 62.9% since the beginning of the year.

According to Guo Chenguang, Guangzhou Futures Exchange plans to finish contract rules design and delivery standards of lithium carbonate futures, and promote the listing as soon as possible within this year, so as to support lithium battery industry in handling risks. Different from overseas futures exchange that usually use the method of cash delivery, Guangzhou Futures Exchange will adopt physical settlement for lithium futures, and select main production and sales areas as settlement sites, i.e. Sichuan, Jiangxi and Qinghai, the three provinces mainly producing lithium; Hunan, Jiangsu, Fujian, Guangdong, Hubei and Shanghai, the six areas mainly involved in lithium trade. Sichuan is the benchmark settlement site. According to Guo Chenguang, lithium futures contract aims to cover the entire industry chain, from upstream lithium ore exploiting, importing, to end material recycling. We select main production and market areas as settlement sites so as to facilitate the participation of companies in futures market. Shanghai is selected as one of the main production and market areas because Shanghai acts as a main port for lithium product importing in China; Tibet will also have the opportunity to be selected as a main production and market area under the circumstance that lithium capacity of Tibet gets substantially released in the future.

The brand of products will be taken into consideration when physical settlement is adopted for contracts. Period of validity of warehouse receipt is 6 months, and the warehouse receipts will be cancelled on the last trading day of every March and September. Guo Chenguang indicated that companies will consider the brands of lithium products when using and purchasing lithium carbonate, and Guangzhou Futures Exchange will also strictly control product quality, and will prioritize evaluating and recognizing the brands that enjoy high market recognition and quality reputation, for battery-grade lithium carbonate settlement. Other brands that fail to pass the evaluation may be settled as industry-grade lithium carbonate. There will be some price difference between the two kinds.

For the settlement that involves lithium products of different levels of quality, Guangzhou Futures Exchange will adopt the method of price range premium setting that combines absolute value and proportion, and take the lower level in the price difference between battery-grade lithium carbonate and industry-grade lithium carbonate, and identify battery-grade lithium carbonate benchmark product position.

Guangzhou Futures Exchange was established in January, 2021, with registration capital of RMB 3 billion and registration address of Nansha District, Guangzhou. The Exchange is positioned as helping to improve domestic capital market system, supporting OBOR construction in Guangdong-Hong Kong-Macao Greater Bay Area and the whole country, and assisting green development. Four major categories of futures types are planned, i.e. commodity index, green development, International market cooperation, and the one with Guangdong-Hong Kong-Macao Greater Bay Area characteristics. Among them, green development incorporates carbon emission right futures and power futures that attract a lot of attention, and industrial silicon and lithium carbonate futures. With respect to overseas trends, Chicago Mercantile Exchange (CME) and London Metal Exchange (LME) initiated online lithium futures contracts in May, 2021 and July, 2021. Singapore Exchange (SGX) plans to initiate lithium futures contract within this year, to handle violent fluctuations in raw material price resulting from fast development in NEV field.