CME to Launch More Battery-Metals Contracts as Demand Surges

(Bloomberg) -- CME Group Inc., one of the largest commodity exchanges in the world, expects to launch a suite of battery-metal products in the future as it works toward securing its place as the go-to home for trading of key materials needed in the global energy transition.

The exchange last year saw a surge of interest in contracts of metals like cobalt and lithium that are critical to lithium-ion batteries needed to power electric vehicles and energy grid storage systems, according to CME's global head of metals products, Young-Jin Chang. The bulk of interest is coming from commercial clients and hedgers who actively buy and sell the physical metals, she said, indicating that the exchange is gaining traction from more and more key players that still largely transact through handshake deals and long-dated contracts.

“I could see us doing a nice suite of the battery metals,” Chang said in an interview in New York, without providing a time frame. “We really are the home of the battery metals stable of contracts.”

The CME's cobalt futures contract started trading in 2020 as the market was looking for more transparency around pricing in the battery metal market, which still largely moves on direct deals between producers and original equipment manufacturers that supply automakers like Tesla Inc. and others. The CME said trading volume of cobalt is up 81% year-over-year, and the exchange has now extended open interest in the contract through 2023, indicating climbing demand for contracts more than a year away.

To be sure, volumes are still small compared to much more mature markets like copper. For example, aggregate open interest for lithium and cobalt is 3 contracts and 1,594 contracts, respectively, while for copper it's nearly 200,000. But the CME is beating the rival London Metal Exchange as carmakers, battery companies and banks like Goldman Sachs Group Inc. are looking to hedge their price exposure.

“Commercial interest has given us a chance to talk with OEMs that we wouldn't normally talk to who are usually behind banks,” Chang said. “Normally, I wouldn't see questions like this in a new nascent contract from the professional investor community, but now I am.”

Cobalt futures for February delivery rose 2.3% on Tuesday to $34.53 a pound.