Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
Fastmarkets has partnered with CME Group for the launch of a cash-settled cobalt contract. The contract will be settled against the daily benchmark cobalt price assessed by Fastmarkets.
Cobalt is a critical building block of the emerging new energy economy and a principal material for the fast-growing electric vehicle market. Cobalt prices have recovered from three-year lows seen in 2019 but are significantly below the 10-year highs seen in 2018.
There is continuing uncertainty in the cobalt market: Companies are researching various competing battery technologies while some market participants are stockpiling or signing multi-year cobalt contracts to secure supply. The growing size of the cobalt market, alongside volatility in prices, underscores the need for and value of a hedging mechanism, Fastmarkets said.
CME Group will offer this hedging mechanism settled against the following Fastmarkets price: cobalt standard grade, in-whs Rotterdam, $/lb. The contract is scheduled to trade under the Bloomberg ticker MB071071 from December 14, pending regulatory review.
The final settlement price will be an arithmetic average of the daily Fastmarkets standard-grade cobalt (midpoint) price.
The launch of the contract builds on growing participation in OTC trades, which are cash-settled against Fastmarkets’ cobalt price assessments. Key market participants have endorsed the exchange’s partnership with Fastmarkets as a critical step in the evolution of risk management solutions for the cobalt market, the analytics firm said.
The launch of the contract builds on growing participation in OTC trades, which are cash-settled against Fastmarkets’ cobalt price assessments
“As zero-emission policies continue to grow globally, clients are looking for more effective ways to manage the price risk associated with electric transportation,” said Young-Jin Chang, managing director and global head of metal products at CME Group. “This new product will also provide a forward curve for the cobalt market, creating more transparency around a key metal in the green economy.”
Fastmarkets has been the standard-bearer for cobalt prices – giving market participants the confidence to make critical financial decisions based on price. Fastmarkets has invested significantly in resources and technology to ensure its price-assessment process aligns with IOSCO principles.
The Fastmarkets daily standard-grade cobalt price was validated over a 12-month period in September 2019. It then received a 12-month re-validation in September 2020.
“Cobalt is a prime candidate for risk management. It is central to the emerging new energy economy but susceptible to price swings as different battery chemical strategies unfold,” said Fastmarkets CEO Raju Daswani.
“Given the expected dynamism, market participants require a price that is transparent, auditable and reflective of market events. Fastmarkets’ standard-grade price assessment meets all those requirements, giving a powerful tool to help market participants manage risk along the entire cobalt supply chain,” Daswani added.
