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LME explores nickel sulfate premium contract to expand battery metal futures

Tokyo — The London Metal Exchange is exploring launching a nickel sulfate premium contract, following the launch of cash-settled lithium and cobalt contracts possibly in 2019, which will expand its battery metals futures offerings, Oscar Wehtje, the product development head said Tuesday.

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Wehtje, speaking at LME Update Forum in Tokyo, said a contract for nickel sulfate premium over LME nickel prices, as well as graphite, manganese and other battery cathode and anode material, are in the pipeline of prospective new contracts.

LME nickel contract volume has reached 16% compound annual growth rate, or CAGR, from 2009 to 2018, Wehtje said.

Primary nickel demand in the battery sector is forecast to rise by over 20% annually between 2017 and 2027, UK consultancy Roskill said previously.

"Nickel sulfate is a small market [compared to nickel market for stainless steel]. We are working closely with the industry," he added.

By 2027, Roskill forecast primary nickel demand in batteries to be above 500,000 mt/year, which is one-third of consumption by the stainless steel sector. But nickel demand growth for batteries will be greater than the rise in consumption by stainless steel mills, Roskill said.

Japanese market participants agreed more industry-wide discussions are required, as the battery metal market needs to evolve. They cited transparency and an increase in new market entrants as keys for a more robust battery metal market.

"Automotive battery market is limited to a few companies that have direct access to automakers. There is limited market information and opportunities for those outside the battery club. The LME battery contracts would be useful for a few such seasoned players, but there is a question whether a robust pricing mechanism can be developed with limited participants," said one Japanese trader.

A second Japanese trader, who was consulted by the LME on the sulfate premium contract recently, said battery-grade nickel sulfate was trading at $2,000-$4,000/mt plus LME nickel prices.

"The premium [calculated basis nickel content in the sulfate] is roughly one-fifth of the nickel cathode prices. The premium would be a reflection of supply and demand specific to nickel sulfate," he said.

There is yet little consensus in the battery industry on what futures contracts will be useful, sources said.

Rather than separate nickel and premium contracts, some have suggested to LME to launch several nickel contracts for various grades, sources said.

LME plans to launch cash-settled cobalt contracts in early 2019, in addition to existing cobalt contracts for physical delivery that started trading in 2010.

Wehtje said there is a risk of splitting liquidity with two contracts.

"In that case, the liquidity will move to that with more liquidity. There will be arbitrage opportunities. It is up to market participants to decide how to make use of the contracts," he said.

The second Japanese trader warned that several contracts on the exchange may confuse the market if one contract is in backwardation and the other is in contango.

--Mayumi Watanabe, mayumi.watanabe@spglobal.com

--Edited by Irene Tang, irene.tang@spglobal.com