Spodumene futures: frequently asked questions

What is spodumene and how does it fit into the battery raw materials (BRM) value chain?

Spodumene is a key feedstock in the production of lithium salts, which are a crucial component in lithium-ion batteries. Because spodumene is a key feedstock, the price can be viewed as an indicator of the overall health of the lithium market. It directly affects the overall prices of battery-grade lithium hydroxide and lithium carbonate. Increasing demand for electric vehicles (EVs), energy storage systems (ESS), consumer electronics and emerging technologies makes the price of spodumene even more significant.

Production of spodumene has increased significantly in recent years, including the emergence of new regions of production. This trend is set to continue while demand for lithium increases.

Monitoring spodumene prices can provide insight into supply-and-demand imbalances, production trends and market competitiveness.

What are futures contracts, how do they work, and why are they important for the market?

Futures contracts are standardized, legally binding financial agreements to buy or sell a specific underlying asset at a predetermined price at a future date. Futures contracts, which are traded on futures exchanges, provide a way for market participants to hedge against price fluctuations, speculate on price movements and manage risk. Futures markets facilitate the trade of futures contracts, where participants can buy or sell contracts on various assets such as commodities. These markets provide a platform for price discovery, risk management and market speculation.

What is the new futures contract announced by Fastmarkets and CME today?

• The CME Group will launch the Spodumene CIF China (Fastmarkets) futures contract on October 28 2024.
• Fastmarkets Spodumene min 6% Li2O, cif China is the underlying price assessment for the CME futures contract
• Learn more at the CME Media Room

What is the difference between physically delivered and cash-settled futures contracts?

Physical delivery involves the actual transfer of the underlying asset at contract expiration, while cash settlement settles contract obligations through cash payments based on price differentials. The choice between the two depends on contract specifications and market preferences. The CME/Fastmarkets spodumene futures contract is a cash-settled contract.

Why is it the right time to launch a spodumene futures contract?

Liquidity has been growing recently in the spodumene market against a backdrop of notable growth and evolution in the wider lithium market. Although spodumene and lithium salts prices remain correlated, they have been disconnecting from each other more frequently in recent weeks. These developments warrant a separate futures contract for spodumene to allow market participants to better manage their risk and exposure to this critical raw material.

Spot trades feed into Fastmarkets’ prices, which are also being utilized in physical contracts. This guarantees futures convergence to the spot price at expiry.

How are lithium futures contracts performing?

• Lithium volumes and open interest are both at record levels as of September 26, 2024
• The CME Group lists lithium hydroxide and lithium carbonate futures as well as lithium hydroxide options
• Lithium hydroxide September volumes: 10,541 lots; open interest: 32,679 lots
• Lithium carbonate futures open interest: 1,197 lots
• Lithium hydroxide options: 529 lots
• Most of the liquidity is in the lithium hydroxide futures but interest has increased recently in the lithium carbonate futures contract

Who should be interested in the launch?

This contract will be important for market participants across the entire lithium supply chain. This includes producers, refiners, traders, banks, brokers and battery manufacturers. Each of these groups plays a distinct role in market liquidity, risk management and price discovery.

Why should they be interested?

Market participants will be able to utilize the futures contract to manage their spodumene risk by making a like-for-like hedge on a futures exchange, which has not historically been possible. In volatile markets, market participants must ensure they are protected against potentially adverse price fluctuations by implementing risk-management strategies. This contract will give participants the ability to hedge their risk and prioritize stable cashflows. The new launch will help to build liquidity and transparency in both the spodumene and wider lithium markets.

Some market participants will take advantage of trading the spread between the lithium hydroxide and spodumene futures contracts, adding further liquidity to other contracts in the BRM suite listed on the CME. A futures market should attract finance because it will increase transparency across the forward curve and allow the financing party to better calculate and price the risk associated with financing projects.

Why is Fastmarkets’ spodumene assessment based on 6% Li2O?

Spodumene is typically priced at the 6% benchmark, and that is where Fastmarkets observes the most liquidity. The industry uses and reports this on a standardized basis, frequently citing Fastmarkets’ assessments in contracts and official company reports. Fastmarkets spodumene min 6% Li2O, spot price, CIF China ($/tonne, daily) assessment accepts min 5.0% Li2O and max 6.1% Li2O if it can be normalized to 6%.

What is the methodology behind Fastmarkets’ spodumene spot price assessment?

Fastmarkets’ spodumene min 6% Li2O, spot price, cif China is a daily price assessment published at 13:00 UK time, following Fastmarkets’ UK pricing calendar. The price assessment follows IOSCO principles and is subject to annual IOSCO audits, ensuring the highest standards in price reporting. The price is assessed by a team of expert reporters around the world. They survey active market participants, collecting spot deals, bids and offers and deals heard in the market or, in the absence of active data, indications of the tradable level. Once the data is collected, the reporter assesses the price and submits a rationale for that assessment, outlining all the data collected that session and explaining why the price has been set at that level. The price then goes through two additional stages of review by senior members of the team before publication.

A full explanation of the Fastmarkets lithium methodology can be found here.

What other BRM futures contracts do Fastmarkets have?

Fastmarkets continues to lead the way in BRM – it is the only PRA globally to set the foundation for futures and options markets in the battery raw materials supply chain. Fastmarkets has a suite of lithium futures and options listed on three major global exchanges. Lithium hydroxide futures are listed on the CME, the London Metal Exchange (LME) and on the Singapore Exchange (SGX); lithium carbonate futures are traded on the CME and SGX; and lithium hydroxide options are listed on the CME. View all futures contracts here.

Who can I reach out to if I have further questions?

Contact marketdevelopment@fastmarkets.com

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