Cobalt futures trading at CME Group has significantly exceeded London Metal Exchange (LME) volumes this year, as reported by Reuters.
Notably, the CME’s cash-settled contract is supported by buyers, sellers, traders, brokers, and banks since they need a liquid mechanism to protect cobalt. Demand for cobalt has grown substantially due to its role in electric vehicle batteries.
Increasing CME cobalt volumes will aid the US exchange in gaining market share in contracts for other electric vehicle components. On the other hand, the lack of member interest has prevented the LME’s cobalt contract from taking off.
Consistent interest in CME cobalt
The world’s largest cobalt producer backs the liquid cobalt futures market
Glencore is reported to favor the development of a liquid cobalt futures market. The source claims Glencore utilizes the CME for cobalt trading and engages in bilateral OTC transactions with banks.
“Interest in CME cobalt is consistent. Volkswagen and other automakers have to include cobalt in their hedging programmes.”
Trusted source
Unfortunately, Glencore opted against commenting.
Volkswagen joins CME cobalt drive
Cobalt-containing batteries are used in the electric vehicles produced by Volkswagen. It informed Reuters that it does not use the CME’s cobalt futures, instead engaging in direct cash-settled OTC arrangements with banks.
A second source knowledgeable about the situation said that banks then used CME cobalt to hedge their risk to Volkswagen.
CME vs. LME
CME’s cash-settled cobalt contract
Compared to the same 10-month period last year, volumes on the CME’s cash-settled cobalt contract have increased by 273% to 11,003 tonnes since its inception in December 2020.
In October, the CME cobalt market had 8,258 tonnes of open interest, a 352% increase from the same month last year. Open interest spans maturities from November 2022 to December 2025.
Unfortunately, the CME Group chose not to comment.
LME’s cash-settled cobalt contract
Since its inception in 2019, the LME’s cash-settled cobalt contract has yet to trade, and interest in the product’s physically deliverable counterpart has waned. It is demonstrated by a volume decline of 68% to 238 tonnes from January to October of the previous year.
Compared to levels near 800 tonnes in December 2018, open interest on the LME’s physically deliverable contract has remained unchanged at 13 tonnes since August.
“CME brokers want to make the contract work. LME brokers don’t care, it’s not a core offering for them.”
A second source familiar with the matter
Cobalt demand for electric vehicle batteries
In 2015, the battery industry accounted for 47% of all cobalt demand, or 88,147 tonnes, as per Benchmark Mineral Intelligence (BMI).
By 2030, BMI projects that the demand for cobalt in batteries will have increased to 82% (360,231 tonnes) from this year’s projected 68% (164,000 tonnes.)
According to Caspar Rawles of BMI, most of that growth will come from batteries for electric vehicles. Battery life, which manufacturers typically guarantee for eight to ten years, is increased by cobalt. It ensures they do not readily overheat or catch fire.
In the previous year, Glencore produced 31,300 tonnes of cobalt. It is primarily found in the Democratic Republic of the Congo as a byproduct of copper.
