Lithium futures trading starts turbulent in China

Futures for lithium, a key component for electric vehicle batteries, first rolled out in China, got off to a tumultuous first day of trading life.

Lithium carbonate fell below the base settlement price of 246 thousand yuan ($34,263) per ton on Friday on the Guangzhou Futures Exchange, according to data from the exchange. Losses on contracts for January delivery slumped to 215,000 yuan before recovering to an 11% drop.

Contracts for the February-July period, on the other hand, lost 14 percent, which is the decrease limit for the first day.

Regarding the price movements, Shirley Wang, General Manager of Industry Research at Shanghai Metals Market, said that the new futures’ date from next year may have contributed to the price drop.

“Expected oversupply for lithium products in 2024 softens confidence,” Wang said, adding that the first quarters are typically a slow period for restocking activity in China.

Spot prices of lithium carbonate, a refined form of the metal, have been insane lately.

Prices hit a record high in November as global pressure on the electric freight fleet fueled consumption, but has now declined this year as supply pressures eased.

Experts say the new contracts will provide more transparent lithium pricing and reduce volatility in spot prices, offering more effective ways for manufacturers and buyers to hedge risk.

Tesla CEO Elon Musk described the increase in metal prices, which is seen as the key to the transition to clean energy, as “crazy”.

However, battery and automobile manufacturers around the world continue to compete to secure their raw material supplies, or to sign purchase agreements or expand existing ones.

Western countries are also accelerating their efforts to establish their own supply chains with their allies, as China still dominates the processing industry and is a significant producer.