Benchmark Minerals’ Exchange Traded Lithium Breakfast – The Takeaways

Last week, Benchmark Mineral Intelligence hosted a Wall Street breakfast to discuss the potential for Exchange Traded Lithium.

The breakfast was attended by an excellent cross section of those that are set to be affected most by the introduction of  new financial instruments for lithium.

The London Metal Exchange (LME) presented at the breakfast together with Benchmark Mineral Intelligence, Deutsche Bank on the current state of play for lithium and Rho Motion’s expert insights into the downstream portion of the lithium ion battery to electric vehicle space.

Here we outline the main talking points from our Exchange Traded Lithium Breakfast.

  • Strong cross section of future market participants in attendance

The breakfast discussion was well attended by a strong cross section of those candidates likely to be utilising any future exchange traded lithium mechanism.

71% of the audience was from either an institutional investor, broker or an exchange and we have labelled these delegates as “Financial” on the below chart.

22% of attendees were from the “Lithium Supply Chain”; those companies that are either producing lithium chemicals, mining spodumene, developing new supply or purchasing and trading lithium.

The remaining 7% are labelled as other and these attendees were from educational centres and government representatives.

CHART: Exchange Traded Lithium Breakfast – Attendees by Sector 

EXCHANGE TRADED LITHIUM ATTENDEES

Source: Benchmark Mineral Intelligence

  • LME’s decision on a PRA end-March

The London Metal Exchange reaffirmed its plan decide on the Price Reporting Agency (PRA) it will select for its cash settled lithium contract by end-March 2019. Benchmark Mineral Intelligence is on a shortlist of three PRAs that are in the running to provide an independent lithium price.

  • Benchmark Minerals’ committed to exchange traded lithium discussion

From Benchmark Mineral Intelligence’s perspective, we are committed to the exchange traded lithium discussion which we began over two years ago.

The Benchmark World Tour 2019 will heavily feature this subject to canvass the opinions of over 2,000 industry and investment professionals across 17 cities throughout the year.

The LME has been pioneering in the push to introduce financial derivatives to the lithium market and, as a result, multiple exchanges now recognise the opportunity presented by lithium’s growth trajectory over the next decade.

Benchmark Mineral Intelligence has been vocal about not only wanting to provide the index lithium price for the LME’s lithium contract, but also to offer a development partnership to utilise our market knowledge and expertise to ensure the cash settled lithium contract is a success.

The chosen PRA needs a truly global presence, influence and contact list within the lithium ion battery to EV supply chain to make this work.

On both counts, Benchmark Mineral Intelligence is the leading voice in the space and stands alone as the expert and focused publishing business for this industry.

While we hope to use this expertise to ensure a successful contract launch, Benchmark Minerals’ primary goal continues to be to work with the actual lithium-to-EV supply chain to devise contracts which use our price assessments as reference points and as benchmark prices to be written into these contracts.

This will not be impacted by any exchange traded contract.

CHART:  Lithium: from niche to mainstream speciality

EXCHANGE TRADED LITHIUM LME
Lithium is still a relatively immature market compared with other exchange traded commodities. A number of steps are required for a financial lithium market to emerge and this includes the formation of spot market, over-the-counter (OTC) trading and eventually becoming an exchange traded product. A trusted price provider is critical to this development.

Source: Benchmark Mineral Intelligence

  • LME targets lithium contract implementation end-2019

Once a PRA is chosen in March, the LME is targeting to launch a cash settled lithium contract (without physical delivery) by H2 2019, most likely in Q4 2019. However, this deadline is fluid and dependent on feedback from the lithium industry’s stakeholders as to the format of the contract and the lithium products that it will feature.

Source: LME @ Benchmark’s Exchange Traded Lithium Breakfast

  • Spodumene, lithium carbonate, lithium hydroxide all in play

The LME is yet to make a decision on what types of lithium products the cash settled contract will feature, whether that be the lithium feedstock, spodumene, lithium carbonate or lithium hydroxide.

This is likely to be a decision led by the industry and institutional investors set to benefit from this new mechanism.

The breakfast discussion heard strong arguments for both spodumene and lithium hydroxide.

Spodumene was compared to the exchange traded iron ore contracts on the CME and SGX exchanges.

Not only does spodumene offer more tonnages than lithium chemical derivatives but also a similar pricing metric to iron ore with SC6% (Spodumene Concentrate 6%) likened to the original iron ore (Fe) specification of Fe62% and now the higher grade Fe65%.

Lithium hydroxide was also discussed as an option, considering the way the lithium ion battery industry has been trending for the past 12 months with nearly all new planned chemical supply choosing the hydroxide route.

This trend is a result of the prevailing preference for NCM622 and the potential of NCM811 chemistry in the lithium ion battery megafactories build out, which reached 68 plants at 1.45GWh by 2028 in Benchmark Minerals’ Lithium ion Battery Megafactories January 2019 Assessment.

Introducing pricing metrics into hydroxide, however, is more of a challenge than spodumene with a wider variety of end-user specifications which are constantly evolving and tightening. It leaves the market questioning whether this very specific product is ready for a more generalised pricing mechanism.

Lithium carbonate was not discussed in detail yet still remains an option.

  • 2018 EV battery pack average of 40kWh, rapidly rising

Rho Motion’s Managing Director, Adam Panayi presented an excellent downstream view of the EV supply chain.

The publishing and consultancy business which specialises in battery packs and EVs presented new data showing average EV battery pack sizes at a 2018 average of 40kWh – a number that includes the smaller EVs produced in China – but growing by 35% out to 2025.

A slide showing non-Chinese EVs in the pipeline presented a much bigger story with EV battery packs changing from Rho Motion’s average of 40kWh to up to 110kWh (see slide below).

You can download Rho Motion’s presentation here.

Source: Rho Motion

  • Investor-focused audience significantly in favour of LME lithium contract

In Benchmark Minerals’ snap poll at the breakfast, we asked the attendees a simple question: Do you think the LME lithium contract is a good idea?

75% of the audience voted “yes”, deeming the contract a good idea whereas only 3% voted no, with the remainder abstaining.

Considering that attendees were predominantly from financial backgrounds this may not come as a surprise, however, the “yes” vote included representation from the lithium industry and not just investors.

We also held a discussion on the reasons why this was not a good idea, which centred around lithium being a small, niche and specialised market that simply is not ready for a commodity approach to trading

However, some representatives of the “no” side of the vote did concede that with time, some form of an exchange traded lithium contract could be introduced.

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These lithium prices are used by major actors in the supply chain to discuss and negotiate lithium contracts.

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