Ganfeng Lithium applies for approval to trade financial derivatives to protect itself from global market volatility

Ganfeng Lithium, China’s largest lithium producer, announced plans to seek shareholder approval to engage in financial derivatives trading as a measure to protect itself against risks associated with its rapid international expansion. This move aims to manage the volatility and risks inherent in cross-border investments and overseas market fluctuations.

The company, which last year had the world’s third-largest lithium production capacity, plans to trade derivatives such as options and forward contracts, linked to various assets including stocks, indices, commodities and interest rates. According to a statement issued on Tuesday to the Shenzhen Stock Exchange, the trading will take place in both international and over-the-counter markets.

“Ganfeng’s overseas assets have increased as its globalization drive has progressed,” the statement said. “The company and its subsidiaries plan to start operating derivative products on an appropriate scale, to hedge their exposure to cross-border investment risks and overseas market volatilities.”

Ganfeng has set a daily maximum limit of outstanding contract volume of 8 billion yuan (US$1.1 billion), and margin deposits will be subject to the same ceiling. The company will use its own financial resources for these trading activities.

Following the announcement, Ganfeng shares closed up 2.8% at HK$17.48 in Hong Kong and 0.8% at 28.8 yuan in Shenzhen.

Last year, Ganfeng, based in Xinyu, Jiangxi province, received a 12-month mandate from shareholders for up to 8 billion yuan in derivatives trading. Since no trades were made before the mandate expired last month, the company is now seeking fresh approval.

Chinese lithium giant Ganfeng increases investment in Argentine project

This development follows a US$342.7 million deal reached by Ganfeng in May to increase its stake in one of the world’s largest lithium projects in Mali, West Africa. This acquisition aims to secure additional resources to support the growing production of electric vehicles (EV) in China. Ganfeng also has interests in lithium projects in Mexico, Australia, Argentina and Ireland.

China is the world’s largest EV market, with electric cars accounting for about 60% of global deliveries. Lithium-ion batteries, a critical component of EVs, can account for up to 40% of the cost of a new electric car.

In recent market trends, the price of battery-grade lithium hydroxide in China fell to 82,300 yuan per tonne on Friday, marking a 9% decrease from the previous month and a 71% drop compared with a year earlier, according to Daiwa Capital Markets. Lithium hydroxide and lithium carbonate are the main compounds used in the EV supply chain.

“The persistently weak price is driving lithium producers out of the market and other producers will reduce or defer investments,” ANZ analysts said on Monday. “The supply glut is not that great, and the price decline appears overdone.”

Ganfeng said last week that it expects to report a net loss of between 760 million yuan and 1.25 billion yuan for the first half of the year, compared with a profit of 5.85 billion yuan a year earlier. The company attributed the loss to lower commodity prices and a write-down of assets at its investment in Australia-listed Pilbara Minerals.