Electric car, commodities boom make it imperative to have price hedging tools for battery metals, says CME

Name: Behind the scenes at BYD Auto: China’s biggest electric vehicle factory
Uploaded: 2021-05-13T22:00:19.000Z
Duration: 1 min 47 s
Description: Behind the scenes at BYD Auto: China’s biggest electric vehicle factory

With battery accounting for 20 to 40 per cent of the cost of an EV, futures will help users and traders to manage price risks, CME executive says

After CME Group launched a lithium futures contract on May 3, London Metal Exchange plans to introduce a similar product on July 19

Reading Time:3 minutes

Why you can trust SCMP

Workers at Xinwangda Electric Vehicle Battery make lithium batteries for electric cars and other uses, in Nanjing, in China’s eastern Jiangsu province. Photo: AFP

Eric Ng

Published: 6:00am, 14 May 2021Updated: 12:39pm, 19 May 2021

Soaring demand for electric vehicles and battery metals amid a wider commodities boom and a drive to decarbonise the global economy will see a rising need for price risk management tools, according to CME Group, the world’s largest derivatives marketplace.

As a battery makes up between 20 and 40 per cent of the cost of an electric car, futures will allow users and traders to manage risks by locking in prices of key materials that go into its production, a senior CME executive said.

After launching a cobalt futures contract in December, the Chicago-based company added lithium futures to its product offerings on May 3. The London Metal Exchange, part of Hong Kong Exchanges and Clearing, plans to introduce its lithium futures on July 19.

“With recent acceleration of the ESG [environment, social, governance] movement, we have seen [rising] penetration of electric vehicles,” Young-Jin Chang, CME’s global head of metals, said during a video conference on Wednesday. “The demand for raw battery materials is rapidly evolving … creating hedging needs for market participants.”

With a wide array of metals already in use in EVs, including cobalt, nickel, lithium, iron, aluminium and copper, others could join the list.

“Platinum and palladium could play a critical role in the EV revolution as well,” Chang said. “Used in catalytic converters in internal combustion engines, they are emerging as the next generation materials in lithium-ion, lithium-air and lithium iron phosphate batteries.”

The EV metals futures’ launch comes amid a commodities price boom, boosted by government stimulus and low interest rates aimed to restore global economic growth that has been hit by the coronavirus pandemic. Low rates have also encouraged speculative activity as investors seek higher returns than bank deposits.

01:47

Behind the scenes at BYD Auto: China’s biggest electric vehicle factory