LME EV Battery Materials

Transcription

1 LME EV Battery Materials December 2017 SETTING THE GLOBAL STANDARD

2 LME is at the core of the global metal markets LME is the leading global exchange in all non-ferrous metals LME provides market leading pricing of futures contracts In 2016, the LME traded million lots 3.5 billion tonnes $10.3 trillion notional value Robust Regulated LME Price Trusted Daily Transparent This equates to an average daily turnover of 618,627 lots LME is ideally positioned to delivery efficient, transparent and regulatory compliant risk management tools for the battery materials market 2

3 Possible expansion Current LME offering The LME is uniquely positioned to service the growing EV battery industry Cobalt Nickel Copper Aluminium Cobalt Sulphate Lithium Electric vehicle Li-ion battery pack Li-ion battery cells Li-ion battery cathode material 3

4 LME s vision for battery materials Work with industry to serve the growing market s needs Formation of industry consortium Discuss key questions for battery complex pricing Identify and refine best-practise pricing methodology Launch risk management tools Bring together key participants across the value chain to acknowledge the shared goals and challenges Discuss the rapid growth of electric vehicles and the impact on the development cycle of the commodities involved Assess need for risk management per battery ingredient Gather feedback from the industry regarding the pricing methodology currently adopted Develop understanding of the structure and specificities of the markets in the scope of the analysis Identify, support and endorse the leading index providers Work with the industrial community to encourage industry wide adoption of index linked pricing Work with index providers to ensure compliance with IOSCO and ESMA regulations Use LME s know-how of price risk management to assess the needs of the battery materials market Launch effective, transparent, regulated and secure tools for price risk management Work with the industry to promote education, market participation and liquidity 4

5 The LME can lead an industry wide consortium to accelerate the development of the market Depending on the needs of the battery materials market, different partnership structures are viable 1. Working group E.g. steel early stages To launch LME Scrap and LME Rebar, the LME and its partners opted for an informal working group. After building a new steel market, the ferrous working group has naturally evolved into a committee. Arguments for the working group model: Easy to involve new participants Participants need limited resources/effort/involvement to contribute LME is autonomous, agile and effective in making decisions 2. Committee 3. Consortium E.g. formal base metal committees At the LME, base metal markets are discussed quarterly in the operational metal committees. Committees allow the LME to gather market feedback, discuss challenges ahead, gather feedback on current issues and ensure contracts are fit for purpose. Arguments for the committee model: Good commitment from participants Regular involvement of participants in discussing the path forward Well established framework, effective for base metals E.g. LMEprecious Each new market requires different model: participants Each new market requires a different model: participants choice of model is key to the success of the product choice of model is key to the success of the product launch launch The LMEprecious initiative was created by the LME, the World Gold Council and a group of leading industry players to introduce a suite of exchange-traded, loco London precious metals products. Those industry players formed a consortium which entered into a revenuesharing agreement with the LME. Arguments for the equity consortium model: Direct involvement of participants Direct feedback on the state of the market and the participant s needs Strong incentive for all participants to contribute Revenue share to ensure alignment of interests 5

6 Key questions for battery complex Lithium Which index is most accepted by the industry? Cobalt What enhancement should the LME pursue for its Cobalt contract? Should the LME list a Cobalt Sulphate contract? Nickel Should the LME list Nickel Sulphate as a premium to LME Nickel? Graphite Manganese Should the LME consider other battery components? 6

7 Identification of the best settlement approach lays the foundation for a new futures market Cash settled contract more suited for chemical compounds Given the specific physical specifications and storage requirements of the battery materials, physically settled contracts present a number of challenges Cash settled contracts, referencing specific index prices, are thus preferable The index should be used by the industry as a price reference in procurement/supply contracts, or meet the necessary criteria to be adopted as such Potential indices will be compared on the basis of agreed parameters Example of parameters: Market participants must be comfortable with the index as an appropriate reflection of physical spot trading prices The methodology must be compliant with current regulatory framework (e.g. IOSCO, ESMA) Frequency of publication must be at least weekly To ensure the selected indices reflect the needs of the industry, the LME will work closely with the consortium to identify the ideal parameters before conducting the required legal and regulatory due diligence on the index provider(s) 7

8 Lithium indices: many providers available but not one established benchmark Benchmark Mineral Intelligence Industrial Minerals Asian Metal Lithium Carbonate, FOB South America Lithium carbonate min 99.5% Li2CO3 battery grade, spot prices DDP Europe and US, $/kg Lithium Carbonate 99%min Delivered China RMB/mt Lithium Carbonate Lithium Carbonate, CIF North America Lithium Carbonate, CIF Asia Lithium carbonate min 99.5% Li2CO3 battery grade, spot prices CIF China, Japan & Korea, $/kg* Lithium carbonate min 99.5% Li2CO3 battery grade, spot prices, ex-works domestic China, yuan/tonne* Lithium Carbonate 99.5%min Delivered China RMB/mt Lithium Carbonate, CIF Europe Lithium carbonate min 99.5% Li2CO3 battery grade, spot prices DDP Europe and US, $/kg Lithium Hydroxide, FOB North America Lithium hydroxide monohydrate min 56.5% LiOH.H2O battery grade, spot prices DDP Europe and US, $/kg Lithium Hydroxide Monohydrate LiOH 56.5%min Delivered China RMB/mt Lithium Hydroxide Lithium Hydroxide, CIF Asia Lithium Hydroxide, CIF Europe Lithium hydroxide monohydrate min 56.5% LiOH.H2O battery grade, spot prices China, Japan & Korea, $/kg* Lithium hydroxide min 56.5% LiOH.H2O battery grade, spot price, ex-works domestic China, yuan/tonne* Lithium Hydroxide Monohydrate 96%min Delivered China RMB/mt Lithium Hydroxide, EXW China Lithium hydroxide monohydrate min 56.5% LiOH.H2O battery grade, spot prices DDP Europe and US, $/kg* Lithium hydroxide min 56.5% LiOH.H2O battery grade, spot price, ex-works domestic China, yuan/tonne Additional to the providers listed above SMM, CRU, Argus and LithiumIndex are working on lithium indices 8

9 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13 Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Lithium hydroxide & carbonate correlation $18,000 Lithium historical prices, USD 100% Comments $16,000 $14,000 90% 80% The correlation between lithium hydroxide and lithium carbonate is ~98% $12,000 $10,000 $8,000 $6,000 $4,000 70% 60% 50% 40% 30% 20% The differential between the two prices as a percentage of the hydroxide price is relatively stable around 25%, ±5% This means that, as price increases, all else equal the differential increases Since July 2017, the differential has dropped well below 20% $2,000 10% $0 0% Differential, % (rx) Lithium Carbonate Lithium Hydroxide Sources: BMI, LME analysis 9

10 Pricing in the base metals value chain a lesson from a mature market LME price minus discount LME price minus discount LME price LME price plus production costs and profit margin Mining Concentration Smelting Semi Fabricated Products Metal Products Low Metal Content Cathode Billet Ingot Wire Rebar Cans 10

11 As floating prices become the standard, miners seek pure play exposure Forward contracts allow miners to maintain pure play exposure while satisfying their customers In our experience, miners/producers may seek two types of hedging: operational and strategic OPERATIONAL Operational hedging is generally used to achieve consistent commodity price exposure e.g. monthly average. Shareholders who look for commodity price exposure expect consistent commodity price exposure to reflect in earnings But quotation periods, INCO/payment terms, transits and fixed price arrangements can see sales prices deviate from monthly average commodity prices Additionally, warehouse halts, unexpected lock downs and unforeseen queues may move price away from pure exposure STRATEGIC Not all miners engage in strategic hedging Strategic hedging is never 100% of production Especially debt holders may desire that a portion of the cashflow (between 20 and 50%) is secured This helps justifying capex and securing financing 11

12 Contact us The LME Electric Vehicles Battery Team 12

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