LME works with Chinese commodities exchange to launch EV battery metal contracts as demand, prices surge

Qianhai Mercantile Exchange is working with its sister company, the 146-year-old London Metal Exchange, to launch the contracts
The bourses, both owned by Hong Kong Exchanges and Clearing, are looking to offer investors the chance to trade contracts of lithium carbonate, nickel sulphate and cobalt

Qianhai Mercantile Exchange (QME), a Chinese commodities trading platform, is working with its sister company, the London Metal Exchange, to launch battery metal contracts.

The bourses, both owned by Hong Kong Exchanges and Clearing (HKEX), are together studying the possibility of offering investors the chance to buy and sell contracts of lithium carbonate, nickel sulphate and cobalt, said Dong Feng, general manager of the QME.

Cobalt, lithium and nickel are the three critical metals used to make batteries for use in electric cars, regarded as the future of transport.

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“Battery metals have become a major target for investment and merger,” Dong said at the LME Asia Metals Seminar in Hong Kong on Tuesday.

Demand for the metals has boomed in the last couple of years, driving up their price.

Benchmark prices of lithium in China, for example, doubled during 2022. Dubbed “the new oil” or “white gold” of the new-energy era, lithium in particular has emerged as a critical mineral in China’s competition with the United States.

“What we can do with QME is that we can trade in the so-called spot market,” said Matthew Chamberlain, CEO of the London Metal Exchange, in an interview on the sidelines of the seminar.

“For physical participants, let’s say, lithium carbonate, or nickel sulphate, QME can generate really reliable [yuan] based pricing for that, and then we can go and launch contracts, be that in Hong Kong or London. [That would be] something that we think is really exciting.”

The 146-year-old LME said it would work with QME to develop a contract for so-called class 2 nickel, focused on the Asian market.

Class 1 nickel is of a higher purity, but increasingly plays a smaller role in nickel usage globally. The LME’s closely watched three-month benchmark contract is based on the price of class 1 nickel and is still used as a reference point to price its lower-grade counterpart.

LME will engage closely with the market to launch such an offering, and then assess whether it provides value to investors, said Chamberlain.

“What we really want is QME to be able to trade and price the materials that are important for China,” he said. “We’d like QME to be seen as the best-practice player which is able to generate really credible pricing for those commodities that are very important for China and for the whole world.”

China, the world’s biggest electric vehicle (EV) market, sold 3 million units in 2021 and another 6.4 million last year. The China Passenger Car Association (CPCA) forecasts that the mainland’s 200 or so electric-car makers will deliver a total of 8.4 million vehicles in 2023.

The planet’s largest producer of lithium-ion batteries, China consumes more lithium, cobalt and nickel than any other country.