This guide focuses on the emerging, yet increasingly important, sector of battery metals derivatives. Crucial for growing industries such as electric vehicles and renewable energy storage, we are seeing demand for battery metals like lithium, cobalt, and nickel ramp up. As such, understanding how to trade these derivatives is vital for investors and companies alike. In this guide we will learn what battery metals derivatives are, how they work, and their significance in the global shipping economy.
What are battery metals derivatives?
Battery metals derivatives are financial instruments that allow market participants to manage their exposure to the prices of battery metals like cobalt, nickel, and lithium without the need to own the physical metals themselves. Battery metals derivatives are valuable tools for those looking to navigate what is a highly volatile market for these critical resources.
The importance of battery metals in the global economy
Tackling climate change is high on the global agenda with efforts to reduce greenhouse gases ramping up. As the world strives to meet 2050 net-zero targets, we are seeing a shift towards using batteries instead of fossil fuels as part of a wider energy transition towards renewable energy sources in order to reduce greenhouse gas emissions. This includes using batteries in vehicles and ships to help to eliminate emissions, as well as providing essential green energy storage solutions. As such, we are seeing a huge surge in demand for batteries; Philip Lye (Broker, Clarksons) says the battery cell market will grow on average by 20% per year until 2030.
Minerals and metals, such as lithium, nickel and cobalt, are essential for battery production. A steady supply of these raw materials is needed to keep up with rising demand for battery production. Battery metals are therefore crucial in today’s global economy given many industries’ supply chains either directly or indirectly rely on ships, road transportation and/or energy storage solutions – all of which are increasingly powered by batteries.
How do battery metals derivatives work?
Battery metals derivatives work as a contract between a buyer and a seller in which the two parties agree to trade the relevant asset (e.g. cobalt or nickel) at a specific price on a specific date in the future. The value of these contracts is constantly fluctuating according to price changes of the underlying battery metal. While very complex and high risk, there are several advantages to battery metals derivatives, such as:
- Helping with risk management – battery metals derivatives allow for hedging against price volatility, helping traders and firms who are physically trading battery metals to protect themselves against potential losses from price swings. They can lock in prices for physical trades for more predictable outcomes.
- Remaining profitable during inactive spot markets – trading in metal futures means firms do not only depend on physical buyers or sellers being immediately available.
- Optimising price exposure – by using derivatives, traders can be active in both physical and financially settled markets, thereby protecting them against long-term price fluctuations in the battery metals markets.
How can Clarksons support your battery metals trading strategy?
Clarksons provides expert support and strategic insights for those involved in the battery metals market. We have a desk focusing exclusively on broking base and battery metals in the futures and physical markets, including the highly liquid lithium and cobalt markets, via the CME Group and SGX exchanges. Our expert team is able to meet the needs of clients looking to build long-term strategies and execute short-term deals. Our battery metals desk has access to information and insight from across the Clarksons Group and is supported by colleagues in global offices to meet the needs of a world-wide client base.