Lithium Market Is Hotter Than Ever And Traders Are Moving In – MINING.COM – MINING.com | CarTailz

However, until recently it was almost impossible to trade. Prices would be set in long-term private contracts between a handful of dominant suppliers and their customers, without the need for intermediaries. Now, rising demand is shaking the way lithium is bought and sold: Many supply deals have gotten dramatically shorter — with floating prices pegged to the spot market — while bourses from Chicago to Singapore experiment with new futures contracts.

And it catches the attention of traders. Companies like Trafigura Group and Glencore Plc, which make money by moving commodities from copper to crude oil and coal around the world, are beginning to break into the lithium market. Merchants say they can help expand and mature the market and reduce risks for other players in the supply chain. Some, like Trafigura and Carlyle-backed Traxys SA, are also investing in new sources of production.

“Trader activity in the lithium market should make it a more transparent and efficient market over time,” said Martim Facada, lithium trader at Traxys. “It’s like oil in the ’70s when governments sold to consumers, but then dealers started offering services and that helped the market grow and develop faster. Lithium starts to go through this process.”

Of course, the comparison with oil 50 years ago is not perfect. The lithium market is tiny compared to more established and liquid commodity markets — annual world oil production is worth more than $3 trillion at current prices, versus $30 billion for lithium. The metal is also refined into highly specialized chemicals that some experts say are much less fungible.

One of the concerns in the lithium market is that extreme supply shortages risk prices rising so much or metal becoming so difficult to access that automakers have to stop buying.

Commodity traders have a long history of shortages and shocks in commodity markets, and the high shares of lithium — so crucial to the success of global decarbonization efforts — could leave them vulnerable to criticism. But despite the industry’s daring reputation, traders insist they are treading cautiously and focusing on relieving bottlenecks, not making them worse.

“If a trader wants to get involved, they have to take a very different approach,” said Socrates Economou, head of nickel and cobalt trading at Trafigura, who also oversees lithium. “They already have a price that can lead to demand destruction – if market participants are pushing the price up, I don’t see how this market can sustain itself.”

Trafigura estimates demand will reach 800,000 tonnes of lithium carbonate equivalent this year — exceeding supply by 140,000 tonnes — and sees demand increasing by another 200,000 to 250,000 tonnes per year through 2025.

And while the world needs more and more lithium, investment in new supply hasn’t kept pace with rising demand. Trafigura’s focus to date has been on closing deals on early stage mining and refining projects. Traxys, another industry pioneer, takes a similar approach, scouring the globe for new sources of supply and helping to get them into production. The goal is to make money to increase the overall flow to automakers, Facada said.

Other traders are also looking at lithium. Glencore, the largest producer of another key battery metal, cobalt, has invested in recycling startup Li-Cycle Holdings Corp. Invests and is considering beginning trading of lithium produced by the Company as well as third party material.

Dealers IXM, Transamine SA and Mercuria Energy Group Ltd. have all built up lithium trading books in recent years, while Japanese company Mitsui & Co. has been active in the sector for a long time.

Traders are entering the lithium market at a time of dramatic change. For years, the main customers of the lithium producers were mainly niche manufacturers in sectors such as pharmaceuticals and industrial lubricants. Now that automakers have become the biggest buyers, miners have moved to a shorter-term pricing model that better reflects the demand/supply mismatch. It’s a trend that’s been likened to a seismic overhaul in the iron ore market when producers switched to spot prices in the 2000s, but it’s weighing on consumers and producers alike.

Tesla Inc. CEO Elon Musk said that spot prices have gotten “insanely expensive,” and after years of asking manufacturers to supply more, he’s stepping up efforts to refine them himself. Meanwhile, investors are betting on top miners like Albemarle Corp. are under pressure to move their contracts more aggressively via spot prices, potentially putting additional strain on their customers if the buying frenzy continues.

It will likely take some time before lithium matures into a tradable commodity market, said Kent Masters, chief executive officer of Albemarle, the world’s largest lithium producer. As the spot market grows, the next major milestone for the industry will be the development of liquid futures contracts.

“We believe that eventually there will be a tool that you can use to hedge lithium prices or speculate financially in the market,” he said in an interview. “It’s a good thing when it’s ripe. But it will take time – it is not today.”

Traders say they can not only help make markets more efficient, but also manage risk for automakers and battery makers, who are beginning to view mining projects and investments in ways that would have been unthinkable for many just a few years ago supply is feared to begin to rise. That puts them in riskier jurisdictions than they’re used to, exposing them to exploding costs and wild price swings that are common in the mining industry.

“One of the roles we play is to connect different layers of the supply chain to provide some level of price protection,” said Claire Blanchelande, Trafigura’s Head Lithium Trader. “In addition to the banks that are getting involved, the car manufacturers also feel comfortable because of our commitment.”

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