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Chinese lithium processors are ratcheting
up hedging to offset wild swings in the battery metal, a sign that local
futures launched around a year ago are gaining traction.
Several companies have unveiled their
hedging exposure via lithium carbonate futures during the recent earnings
season, including Ganfeng Lithium Group Co. and Sichuan Yahua Industrial Group
Co. The contracts on the Guangzhou Futures Exchange were the first of their
kind in China, and trading is already more active than for lithium futures in
established commodities hubs like London, Chicago and Singapore.
The contracts’ first year has not been without drama — trading limits
had to be raised a couple of times late last year to cope with price spikes — but the persistent downturn in prices for lithium carbonate, a
semi-processed form of the electric vehicle battery ingredient, has helped
juice volumes. Spot prices are down almost 90% from a peak in late 2022, as a
supply glut coincides a slower-than-expected growth in EV demand.
“The pickup in hedging activity is mainly
because of the prolonged price slump,” said Zhang
Weixin, an analyst at China Futures Co. “As the futures
market in Guangzhou became more mature and stable, producers are finding
hedging effective in countering the downturn risks.”
The trading volume of lithium futures in
Guangzhou was more than nine times higher in July than when they were launched
a year earlier. The robust activity is helping to achieve China’s goal of making the country a price-maker rather than taker in
commodities essential to the energy transition. The exchange also hosts trading
of futures for industrial silicon, and has plans to list contracts for lithium
hydroxide, palladium and platinum.
China accounts for about 70% of the world’s lithium refining capacity, data from BloombergNEF show, but the
country imported almost 60% of its raw lithium needs last year, according to
the China Nonferrous Metals Industry Association. That makes companies there
more vulnerable to price volatility and geopolitical risks.
Ganfeng said it put 38-million yuan into
futures trading in the first half ,and made a profit of 3.43-million yuan.
Sichuan Yahua is among firms that started hedging this year, saying the move
was “to control the impact of product prices on company
profits.”
Another major Chinese lithium producer,
Tianqi Lithium Corp., said it hadn’t engaged in hedging
yet, but is setting up a team to do so. Tianqi wants to avoid risks caused by
price fluctuations on its operations by “effectively
combining futures and spot transactions,” it said.