Trading rises for cobalt and lithium futures as prices swing

In short: Trading in cobalt and lithium futures is increasing on major UK and US exchanges as buyers and sellers try to cope with fast-changing prices.

What's going on

Futures trading for “battery metals” like cobalt and lithium has picked up this year on the London Metal Exchange (LME) and the US exchange CME. These metals are used in batteries for electric cars, for storing power from wind and solar, and for some equipment that supports large data centres.

A futures contract is a deal to buy or sell something later at a price agreed today (like booking next month’s fuel price in advance). Companies that use these metals, and traders who buy and sell them, use futures to protect themselves when prices jump around.

One reason prices have been moving a lot is supply changes. The Democratic Republic of Congo, the world’s largest cobalt producer, has introduced export quotas. That means it put a cap on how much cobalt can leave the country, with the aim of reducing oversupply and supporting higher prices.

CME said January was a record month for its cobalt and lithium products, averaging more than 1,200 contracts traded per day. CME also reported that trading in options on battery metals rose by more than 400 percent in the second quarter versus a year earlier. Options are contracts that give the right, but not the requirement, to buy or sell at a set price by a certain date (like paying for the option to lock in a price).

What to watch

Some parts of this market are still small and uneven. The LME’s cobalt contract has grown, but its lithium contracts see little use, while China remains a major center for lithium trading and pricing. Another thing to watch is how battery designs change, since some newer batteries use less cobalt, which could shift which metals are most in demand.

Source: Financial Times