(Yicai Global) June 15 -- The Guangzhou Futures Exchange, which started trading its first product silicon in December 2022, is expected to introduce lithium carbonate futures and options in the near future to help battery companies anticipate their costs amid wild price swings.

The southern bourse revealed a draft of guidelines for the new product category, asking for public feedback by June 20, according to the document released yesterday.

For futures contracts, the guidelines say the minimum transaction unit is one ton and the minimum price change is CNY50 (USD7) per ton. The biggest single-day increase and decline will be limited to 4 percent and the trading deposit should equal at least 5 percent of the contract value.

For options, the minimum price change is CNY10 per ton. The style will be American instead of European so holders are allowed to exercise the rights even before the day of expiration.

As sales of new energy vehicles surge around the world, suppliers of lithium batteries are starting to need hedging tools due to the fluctuating prices of raw materials. Evidently, lithium futures began trading on the Chicago Mercantile Exchange in May 2021 and on the London Metal Exchange in July 2021 whereas the Singapore Exchange launched lithium futures and cobalt futures last September.

In China, prices of lithium carbonate have been volatile since the second half of last year. The precursor material has slowly become more expensive again after slumping due to sluggish car sales this year. However, the price is still 50 percent below a historic high of CNY600,000 (USD83,860) per ton reached in November.

The introduction of lithium and cobalt futures can increase price transparency, provide the mining industry with a benchmark to avoid risks, and help NEV vendors manage the risk of key raw materials suddenly changing in price, industry professionals pointed out to Yicai Global.

The GFEX is the mainland’s fifth futures exchange, aimed at developing financial derivatives related to the green economy. So far the bourse only has one product, industrial silicon, while the plan is to add others involving electricity and carbon emission allowances.

Editors: Dou Shicong, Emmi Laine