Chinese lithium trading spikes amid volatility, supply concerns

Trading activity in Chinese lithium futures has surged, with investors facing heightened levels of volatility as speculation around supply uncertainty swirls.

Volumes for the Guangzhou Futures Exchange in July racked up the busiest month since the lithium contract was launched in 2023, according to data from the bourse. Open interest — the number of outstanding bets on prices — was at a record too, with the surge continuing into this month.

The exchange has become a popular venue for betting on lithium, a key material for the electric-vehicle transition that in recent years was hit by a glut and signs of slower growth in EV-battery demand. Now, uncertainty over the supply outlook in Yichun, Jiangxi province — one of the nation’s major production hubs — has bulls and bears jousting over price trajectories, leading to wild swings.

The most-active futures surpassed 80,000 yuan ($11,135) a ton in July, before falling back to 67,840 yuan by the end of the month. Prices in August then rose more than 30% to above 90,000 yuan, before paring monthly gains to around 21% as of Thursday.

“Chinese commodity exchanges have a very high share of participation from speculative or individual investors — much higher than commodity exchanges outside of China — which can lead to greater volatility on a daily basis,” said Przemek Koralewski, global head of market development at Fastmarkets.

Battery giant Contemporary Amperex Technology Co. Ltd. halted a major mine in the region earlier this month, after failing to renew a mining permit following its expiry. That’s fueled additional concerns of tighter scrutiny from Beijing over other nearby projects.

As well as the supply turmoil, the “anti-involution” theme that’s gripped China’s financial markets may have also helped drive the spike in futures activity for lithium due to speculative trading.

Guangzhou contracts for lithium carbonate, a refined form of the metal used in car batteries, have traded at daily limits more frequently in recent weeks. In July, the bourse moved three times to rein in speculative trading, including capping new positions and adjusting trading fees.

The market’s “current sensitivity to policy uncertainty around supply cuts and related news flow” is likely keep price volatility elevated during the next couple of months, Citigroup Inc. analysts wrote in a note this week.

Guangzhou’s exchange “undoubtedly has a role in how the lithium market transacts,” Koralewski said. “Ultimately, it’s in the discretion of market participants to decide if they want to be exposed to it.”

(By Annie Lee)