Understanding Lithium Carbonate and Hydroxide Futures
Lithium Carbonate and Hydroxide futures contracts are similar in many ways:
- Cash-settled
- Follow an industry reference price provided by Fastmarkets
- Follow the same trading conventions: they both have the same tick increment of one cent, denomination in dollars per kilogram, unit size of 1,000 kilograms, and expiry day
The Fastmarkets’ price references track the following:
- Spot price
- Cost-insurance-freight price for delivery into China, Japan, and South Korea
- Value of battery grade material for Hydroxide as well as Carbonate
Uses of lithium hydroxide and lithium carbonate
Lithium hydroxide and lithium carbonate are closely related but have a different chemical composition, which results in distinct properties and applications. EV battery technology is evolving rapidly, with lithium hydroxide typically preferred in nickel rich batteries such as NMC batteries, while carbonate is preferred in other types such as LFP batteries.
Lithium hydroxide is often prepared by chemically treating carbonate, meaning that creating hydroxide requires an additional manufacturing step in the supply chain. This additional production step means that hydroxide is typically traded at a premium to carbonate, but this is not always the case.
The premium has varied over time and depends on factors like relative supply and demand, capacity to convert one into the other, trends in battery technology like the ramp-up in LFP production, and the entrance of new players in the supply chain. Since 2021, the premium has averaged about five dollars, but has ranged from -$5 to $15 at different points in time.
Market participants active in lithium trading are now able to hedge their lithium exposure using the right product for their physical price risk.
Trading Lithium Hydroxide and Lithium Carbonate futures contracts
Market participants that want to trade the relative value of carbonate versus hydroxide are now able to do so using CME Group futures contracts, and margin offsets are available due to the high correlation of prices. Lithium contracts at CME Group allow market participants more choice to execute their lithium risk management and trading strategies in the growing world of battery metals.