The London Metal Exchange (LME) and Qianhai Mercantile Exchange (OME) are jointly developing three new contracts. One will be for lithium carbonate, one for nickel sulphate and one for cobalt. They will be traded on OME, and transactions will be made in renminbi.
And there are some interesting points here. The choice of lithium carbonate, nickel sulphate and cobalt as the objects of future contracts is far from accidental: they are all components for the production of lithium-ion batteries used in electric cars.
OME is also looking to do business with those for a reason – it wants to compete with Shanghai Futures Exchanges, China’s largest base metal trading platform. The LME and Shanghai Futures Exchanges will collaborate because they have a common owner – Hong Kong Exchanges and Clearing – and at the same time the LME is the world’s main exchange for buying and selling base metals.
The LME itself has had a long-standing interest in lithium, been considering launching trades in it as early as 2017. Four years later, the LME launched lithium hydroxide futures transactions, although by then it had been beaten by the US CME Group.
Ironically, the LME was opposed by many lithium suppliers because its contract introduced a standard for lithium hydroxide (which comes in different grades), creating a benchmark for global market participants. However, the LME has managed to convince Albemarle, Tianqi Lithium, Tesla, Jaguar Land Rover, i.e. both lithium producers and consumers, of its usefulness and there are now regular transactions with it.
It is true that lithium hydroxide prices fell sharply in January-April 2023 due to its increased availability on the world market and the end of China’s programme to subsidise the purchase of electric cars by the public. The same happened with lithium carbonate. However, there are signs of a reversal in their price – demand is gradually picking up, and sales of electric vehicles are picking up, dragging lithium prices with them.
For LME, the joint project with OME is strategically important in terms of improving its reputation, which has been damaged by the scandalous discovery of bags of stones in its warehouse in the port of Rotterdam, although they were supposed to contain nickel. Now, the LME needs to win back the trust of its estranged suppliers and traders and raise revenues at the same time. Participation in the global lithium rally is worth it – if trading in lithium carbonate on OME is successful, the LME could launch it in its own ring as well.