last week, the China Securities Regulatory Commission (CSRC) approved the registration of lithium carbonate futures and options on the Guangzhou Futures Exchange. The CSRC said the next step is to urge the Guangzhou Futures Exchange to do an excellent job to ensure the smooth launch and stable operation of lithium carbonate futures and options.
Lithium carbonate is one of the most significant lithium salt products in the lithium battery industry, used mainly in new energy vehicles and energy storage, among other areas. As the core material of energy storage cells, which accounts for about 60 percent of the cost of energy storage systems, battery-grade lithium carbonate accounts for about 80 percent of the cost of the cells. The price of battery-grade lithium carbonate directly affects the cost of energy storage systems and the development of the energy storage industry.
The price of lithium carbonate is driven mainly by the power cell market due to the rapid adoption of new energy vehicles. The cost of battery-grade lithium carbonate fell from a high of 600,000 yuan per tonne in more than five months from November last year to below 200,000 yuan per tonne at the end of April this year as demand from the power sector weakened. It has stabilized over the past two months and rebounded above 300,000 yuan per tonne.
The drop in the price of battery-grade lithium carbonate is undoubtedly highly beneficial for the energy storage industry. Coupled with the increase in energy storage cell capacity, various energy storage companies suggested that "the darkest period has passed." The average bid price for a 2-hour energy storage system in 2022 is around 1.5 yuan/Wh; by June 2023, it has fallen below 1 yuan/Wh.
China is the world's biggest producer and consumer of lithium carbonate, but 75 percent of lithium ore is in the United States. By listing lithium carbonate futures and options, the Guangzhou Futures Exchange will contribute to developing the new energy vehicle industry and the energy storage sector with the power of lots.
According to industry insiders, the listing of lithium carbonate futures had the following positive effects:
First, it provides the lithium salt industry with practical risk management tools and helps it grow steadily and healthily. Raw material risk is a source of risk in industrial chains, and all links in the lithium salt industrial chain are exposed to price fluctuations. Lithium carbonate futures can provide price signals on the one hand to provide a decision-making basis for enterprises in terms of production and procurement, and on the other hand, serve as a risk management tool for enterprises in terms of hedging, enabling fine-grained management of price volatility risk for enterprises.
Second, it supports domestic enterprises to participate in developing overseas lithium resources and ensures the security of the supply of lithium salts. To better ensure the safety of the collection of lithium resources, many enterprises have gone abroad and actively participated in the development of overseas lithium ore resources. Lithium ore development is a capital-intensive industry with significant project construction investments, prolonged production cycles, and extreme investment risks. The listing of lithium carbonate futures could provide price guarantees for related companies. Under the condition of locking in future product profits, it can help domestic companies better participate in the development of global resources.
Third, it serves the development of the lithium-salt recycling industry and promotes the green circular utilization of lithium-salt resources. Lithium salt recycling is expected to be an essential supplementary source of lithium salt supply in China, helping to ensure the supply security of the lithium salt industrial chain and promoting the sustainable development of the lithium salt industry. The profitability of the lithium-salt recycling industry is closely linked to fluctuations in the price of lithium salt. Lithium salt prices fluctuate wildly, creating problems for recycling companies facing cost-price inversion. The listing of lithium carbonate futures allows recycling companies to manage price volatility risk on the one hand actively, thus stabilizing their expected revenue; on the other hand, it can better guarantee their investment return and enhance their attractiveness in the capital market, therefore further expanding their scale and promoting efficient and environmentally friendly recycling utilization of lithium salt resources.
Fourth, it can make "China's voice" heard in international lithium-salt market pricing. Futures prices are formed through open trading and have strong expectations, continuity, and openness. Listing lithium carbonate futures facilitates the formation of an authoritative lithium salt price in China, which can effectively reflect the supply and demand changes in the domestic lithium salt market. Chinese lithium-salt industry enterprises can enhance their initiatives in international lithium-salt trade by using the yuan-denominated lithium carbonate futures price as a benchmark for international trade pricing.
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