LONDON — The London Metal Exchange will launch a new cash-settled cobalt contract on March 11, settled against the benchmark standard-grade cobalt price assessed by Fastmarkets.
The final settlement price will be an arithmetic average of the twice-weekly Fastmarkets standard-grade cobalt price in the expiring contract month. Fastmarkets achieved type 1 IOSCO assurance for its standard-grade cobalt price in August last year.
Click on the image above to download the LME contract specifications.
Physical cobalt prices have seen dramatic swings in recent years, coinciding with mounting interest in the minor metal arising out of the battery and electric-vehicle boom; and the LME has previously said it is working to develop a set of hedging investment solutions for key related metals, including cobalt.
The standard-grade cobalt price hit a nearly 10-year high of $43.70-44.45 per lb in April last year, but has since fallen 48.5% from that level, according to Fastmarkets data. The spot price is down 33% or $10 per lb compared with mid-November alone, amid concerns of mounting hydroxide supplies.
Fastmarkets last assessed the standard-grade cobalt price at $22.50-24.55 per lb on Wednesday January 16.
Those price moves have led to growing calls for a mechanism that allows market participants to hedge their exposure in a way that reflects the day-to-day realities of the physical cobalt market.
"The standard-grade cobalt price assessment published by Fastmarkets MB is the go-to reference for the physical cobalt market. It is already recognized as being sensitive to the unique characteristics of the cobalt market, and we look forward to continuing to engage with the industry as it evolves for the battery revolution," Fastmarkets chief executive officer Raju Daswani said.
The new cash-settled contract will run alongside the LME’s existing physically delivered cobalt contract, which was launched in February 2010.
“The LME is aware that its physically settled cobalt price continues to be employed by some users, and will hence support both contracts for as long as this remains the case,” the exchange said on Thursday January 17.
The LME’s three-month cobalt contract settled at $40,000 per tonne ($18.14 per lb) on January 16. A total of 946 tonnes of cobalt metal is sitting in LME warehouses, of which 707 tonnes is in the form of cut cathode.
“What we’ve seen is divergence between the LME price and the PRA [price reporting agency] price,” LME CEO Matthew Chamberlain said in Las Vegas last May at the annual Cobalt Institute conference. “This persistent discount is a combination of concerns over Democratic Republic of Congo-origin material, and the profile of people trading on the LME versus the profile of people contributing to PRA pricing. This divergence is an important observation,” he added.
The LME’s physically delivered cobalt contract moved to $44,000 per tonne on January 9, from the previous settlement of $50,000 per tonne, with one lot (1 tonne) trading.
“Most of you are using PRA prices in contracts rather than LME prices. The lack of liquidity on the LME [physically delivered contract] is the most cited reason for that, and that in itself is a vicious cycle,” Chamberlain said in May of last year.
The LME’s cobalt contract should “reflect the realities of how people are doing business in the cobalt market,” he added.
Fastmarkets changed the names of its benchmark in-warehouse Rotterdam cobalt price assessments on January 2, 2019. The name "standard-grade" has replaced the name "low-grade." The name "alloy-grade" has replaced the name "high-grade."