By Eric Onstad and Pratima Desai
LONDON (Reuters) - The London Metal Exchange (LME) surprised the lithium market on Monday with its choice of Fastmarkets to provide a reference price for its planned new contract, shunning a rival widely regarded as market leader.
Benchmark Minerals Intelligence (BMI) had worked with the LME on developing lithium futures, but the exchange chose Fastmarkets, which it already uses to price three other contracts, including cobalt.
Both lithium and cobalt are used in electric vehicle batteries.
The LME, the world's oldest and largest market for industrial metals, said it had selected Fastmarkets because it is widely used across the industry and has leading pricing capabilities.
"They are going for a big company, they think it's safe. But BMI has the market, this is completely unexpected,” said one lithium consumer, who declined to be named.
The LME, owned by Hong Kong Exchanges and Clearing, launched seven new futures contracts in March but has delayed the launch of a contract for lithium.
"The LME, together with its advisory group, believes that partnership with a price reporting agency represents the best route to a tradable contract," it said.
China's Tianqi Lithium Corp, one of the world's largest producer of the white metal, said the contract should be a helpful way to bring more clarity to the market.
"This is going to help reduce (lithium) price volatility," Tianqi President Vivian Wu told Reuters ahead of the Fastmarkets Lithium Supply and Markets Conference in Santiago, which starts on Tuesday.
The lithium contract likely will serve as an industry proxy, with supply deals struck at a premium or discount to it, much the way LME contracts for copper and other metals function, Jon Mulcahy, Fastmarkets Price Development Manager for Europe, Middle East and Africa, said.
"Having a benchmark price helps lithium customers better understand the market," he told Reuters.
A statement from BMI Managing Director Simon Moores said that while the company respected the LME's decision, it "wholly" disagreed.
"When the LME first began looking at lithium, the first organisation they called was us," Moores said.
In March the LME said it planned to launch a cash-settled lithium contract in the fourth quarter of this year, but in Monday's statement it said that it would continue "to gauge appropriate timing" for launch.
Opaque pricing for lithium is expected to be high on the agenda for industry leaders at the Santiago conference, with calls rising for more transparency to attract funding to expand the market.