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SEB determined to make battery metal trading smoother

With the combustion engine on its way out, and battery power on an upswing, the demand for lithium and cobalt has surged. At the same time, prices and supply vary a lot, which entails a financial risk for buyers. This why SEB has taken action to help end-users mitigate risk and secure more predictable battery metal trading, according to the bank’s commodities experts.

It is still early days when it comes to the booming markets for certain metals, used in connection with energy storage.

“There has been growing interest in new raw materials among producers of electric vehicles, with lithium and cobalt being central components in high-capacity batteries. On the other hand, suppliers are few, the markets not yet very liquid and the degree of price volatility high. This is where we step in, to help buyers with a suitable hedging strategy and protection against volatility”, Altamash Scheik, Corporate Sales within FX & Commodities, at SEB, says.

His colleague, Per Westling, Commodities Trader at SEB, adds: “Speaking of volatility, last year the price for cobalt was about 40 USD a pound and currently it’s trading for about 14 USD a pound. For Lithium, we saw a big price increase last year, and then a significant drop this year, but on much higher market volumes.”

Volatile prices and limited supply do, quite naturally, constitute a business risk for the end-users of these commodities. It also makes planning ahead in production a lot harder. One way of getting around the problem is through futures contracts – where the parties agree to make a trade at a set date, for a set price. This, however, requires that they can reach one another, at the right time.

“We were one of the first banks to enter the scene and take action to bolster the market for futures trading in battery metals. Our clients are mainly buyers of cobalt and lithium, out of which a large part is found within the automobile industry. By making financial hedging possible for these, we help them mitigate risk”, says William Rose, Commodities Trader at SEB.

The detective work of helping sellers and buyers connect

When it comes to the trading somewhat ‘unusual’ commodities, on the verge of picking up, SEB has often acted as a facilitator. But what does this role mean in practice?

“Commodities are traded on venues such as the Chicago Mercantile Exchange and with for example oil, there’s plenty of activity. Future contracts are being traded by the minute and prices change cent-by-cent. For lithium and cobalt, it’s a different story. There are only a few active traders, and the gap between the price offered and what buyers are willing to pay can be quite wide”, says Aleksander Christensen, Head of Commodities Sales at SEB.

Christensen continues: “Our job is to create a better functioning market and help for example buyers of lithium secure contracts for the right amount, at the right time. Put simply, we do this by actively searching different exchanges and reaching out in our client networks. It’s a bit like detective-work. Over time, we build a stronger connection between the parties, which makes for smoother trade flows.” 

A market set to grow drastically

As the shift to clean energy technology commences, the International Energy Agency (IEA) predicts that different minerals will be of increasing importance. For example, demand for Lithium is predicted to grow by over 40 times by 2040, in a sustainable development scenario.

“As a society, we’re only taking the first steps of a giant transition. With regulation against combustion engines coming into place and increased battery usage – for example for storing energy produced by off-shore windmills – we expect the number of market participants to increase and the trading to grow drastically”, Altamash Scheik says.

This is a development that SEB is more than ready for, according to Per Westling.

“Through our extensive networks and expertise, we have all the tools necessary to help our current and future clients. All in all, we’re a bank with a broad offering of commodities, a rock-solid balance sheet and excellent support in the post trade documentation. Anyone looking to purchase battery metals is welcome to turn to us.”