Shanghai Metals Market Price Assessment Methodology for LFP (power battery) Price        

Product: SMM LFP (power battery) spot price

Last formal consultation: -

Date of expiry: October 30, 2023

Date last updated: October 30, 2022

1. General Principles of SMM Price Methodology

Shanghai Metals Market (“SMM”) is an independent service provider that does not participate in trades. SMM is a market observer that engages buyers and sellers in the commodities market. SMM continuously develops, reviews and revises its methodology by communicating with industry insiders, using the most common product specifications, terms of trade in the industry. SMM attaches equal importance to normal transactions that meet the specifications and standards. SMM reserves the right to exclude from its price assessment any price information deemed to be less reliable or unrepresentative.

SMM publishes spot metals prices (or indices, etc., including markets in China or outside of China) on a daily basis, commonly referred to as SMM prices. SMM has formulated corresponding methodologies for the published SMM prices, which have been published on SMM's official website www.smm.cn for reference. The methods and procedures for the formation and release of SMM prices are specified in these methodologies, and SMM prices are formed and released in strict accordance with the regulations of these methodologies.

In order to conform to the actual situation of the spot market, SMM will make necessary revisions to the SMM price methodology, and will announce it on the SMM official website www.smm.cn 28 days prior to the official implementation, unless there are special circumstances, especially force majeure (natural disasters, wars, bankruptcy of exchanges, etc.) that lead to shorter notice periods. If you have any questions or suggestions about the SMM price and its methodology, please contact the SMM customer service staff (please check the contact information on the SMM official website www.smm.cn). Please read this paragraph in conjunction with the SMM Methodology Review and Change Policy, and the SMM Complaint Policy.

This document specifies the standards and management methods for LFP (power battery) spot price. The purpose of this standard is to establish a transparent and verifiable SMM price setting mechanism and provide market participants with an important pricing indicator.

SMM Benchmark Administration Committee will review the methodology as well as the assessment and publication process. The Committee maintains oversight of the SMM Benchmark methodology and its compilation process, ensuring that SMM prices and indexes reflect as closely as possible the objective conditions of physical markets of relevant commodities. The Committee will immediately point out any problem it finds, and propose external consultations and modifications to the existing methodologies or processes, in order to improve the quality of prices or indices published by SMM. The Committee can only propose changes to the methodologies and processes used in future Benchmark assessments, rather than modifying the already published prices or indexes.

2. SMM LFP (power battery) spot price formation

2.1 Definition, background and significance

Background for release of SMM LFP (low-end energy storage) spot price:

As new energy vehicles gain popularity, the market for LFP batteries has grown significantly, impacting the EV battery sector. This expansion has led to fluctuations in the cost of New Energy Vehicle Market Energy Storage Market, primarily influenced by the domestic prices of LFP (power battery) in China. Consequently, the "China factor" is becoming increasingly significant when analyzing the global supply and demand dynamics for LFP (power battery). It is essential to develop an index that effectively captures the domestic LFP (power battery) spot price fluctuations in China. This index should accurately, truthfully, and promptly reflect the supply and demand dynamics of the LFP (power battery) market. As a response, the SMM LFP (power battery) spot price index was created. Analyzing this price allows us to discern the trends and underlying causes of fluctuations in the LFP (power battery) spot price. This analysis provides a scientific basis for decision-making by enterprises in the LFP (power battery) industry, research institutions, and government bodies.

The SMM Spot LFP (Power Battery) Price is an indicative price formed and published by SMM according to this methodology, which can be used by both parties of the transaction as a reference for settlement of LFP (power battery) spot trades. This price mirrors the actual transaction prices recorded by various enterprises during the daily SMM LFP (power battery) quotes and represents the most probable price range for transactions in the spot market. This price is primarily derived from the day's national spot transaction prices and includes associated costs such as transportation, taxes, capital occupation, and other trading expenses.

The significance of publishing SMM LFP (power battery) spot price:

a. Establish China LFP (power battery) spot price information database

b. Comprehensively and systematically monitor and reflect China's LFP (power battery) spot price trends and market conditions

c. Facilitate government regulatory agencies in monitoring and managing the LFP (power battery) spot market, serving as a crucial foundation for formulating related industry policies.

d. Enhance the influence and authority of China’s (power battery) spot price.

e. Provide decision-making basis for LFP (power battery) spot manufacturers, trading companies, downstream users and other companies

f. Provide price information for LFP (power battery) import and export enterprises

g. Further establish SMM's leading position in price information in the domestic SMM LFP (power battery) industry

2.2 Introduction of price assessment

SMM collects data information used to evaluate LFP (power battery) price by means of standard acquisition (that is, the collection of raw data information that complies with the SMM Data Standards), from including the bid and offer of the buyer and seller that were not traded on the same day, and the actually traded price of spot transaction provided by the price submitters. Each transaction included in the standard procurement marking for LFP (power battery) trade quotes or completed deals must involve no less than 80 mt in physical content. The collection and evaluation (calculation) of data for the SMM LFP (power battery) spot price, along with its daily management, are handled by the SMM LFP (power battery) team, which includes positions A and B and a price manager, comprising three members in total.

SMM's pricing aims to reflect the true transaction levels of LFP (power battery) throughout the day. Therefore, when transactions, quotes, and bids of the same specification and shipment period are simultaneously published in the market, transaction information is considered more important than quotes and bids. Please read this paragraph with the SMM Benchmark Guidelines on Hierarchy of Data Inputs.

2.3 Source of raw price data

2.3.1 Collecting from price data submitters

Please note that the following standards and procedures need to be read together with Submitter Exclusion or Inclusion policy

2.3.1.1 Criteria for price data submitters

SMM selects representative market participant companies from within the tangible industry chain to serve as the designated price data submitters for the SMM LFP (power battery) spot price. These submitters include smelting companies and downstream enterprises, among others, and are chosen based on specific criteria.

SMM will take reasonable care to determine and verify the authenticity and reliability of price provider. The procedure SMM adopts is designed to minimise the risk of using any abnormal price data and oppose any manipulation of the Benchmark.

The SMM policy includes, but is not limited to, steps to take as follows:

a. Collect relevant public domain documents (such as business licenses) for each price submitter and verify the authenticity of the documents.

b. Ensure that each price data submitter is involved in the trading, purchasing, selling, or production of one or more relevant LFP (power battery) within the industry chain.

c. Ensure that each employee designated as the contact person of the price submitter can have direct access to relevant data in the company, and have the necessary authority and ability to submit the data to the price analyst of SMM in a timely manner and in accordance with the SMM Benchmark Submitter Code of Conduct.

d. Gather feedbacks from other reputable market participants to help verify the credibility of price submitters.

2.3.1.1. Criteria for smelters

a. Smelters should have LFP (power battery) purchasing capacity of above 5,000 mt an annualised basis; conduct standardised transactions smoothly across channels with stable sales performance; possess operational integrity, and enjoy good reputation in the market, in the view of SMM.

b. Smelters should provide an objective and honest feedback on their LFP (power battery) production and sales, including quality of the product, sales prices and sales volumes, buyers and inventory, and be able to engage well with SMM Operational Teams in accordance with the SMM Benchmark Submitter Code of Conduct.

c. Smelters should also possess a solid understanding of the macroeconomic environment, the current state of the LFP (power battery), and market transactions. Furthermore, they need to maintain effective communication with SMM price analysts on these topics.

2.3.1.1.2 Criteria for downstream users

a. Downstream users should have LFP (power battery) purchasing capacity of above 1,000 mt an annualised basis; conduct standardised transactions smoothly across channels with stable sales performance; possess operational integrity, and enjoy good reputation in the market, in the view of SMM.

b. Downstream users should provide an objective and honest feedback on their LFP (power battery) procurement, including quality of the product, purchase prices and purchase volumes, procurement sources, and inventory, and be able to engage well with SMM Operational Teams in accordance with the SMM Benchmark Submitter Code of Conduct.

c. Smelters should also possess a solid understanding of the macroeconomic environment, the current state of the LFP (power battery), and market transactions. Furthermore, they need to maintain effective communication with SMM price analysts on these topics.

2.3.1.2 Formation and adjustment of the price submitter list

SMM selects price contributing companies based on the above criteria to produce a stable list. SMM signs a formal agreement with each price contributing company to ensure the accuracy and timeliness of the data provided as well as protect confidential information of the price submitter. At the same time, the corporate confidentiality of the price submitters is protected. SMM delegates specific price analysts to collect transaction data and data related market information from price submitters. SMM will continue to evaluate every price submitter based on criteria above and make amendments to the lists for price contributing companies based on the results of evaluations. When a company fails to meet the criteria, it would be required to rectify within a limited period. If it refuses to rectify or fails to meet the criteria after within 30 days from the date of issue of the rectification notice, SMM will revoke its qualification for price contributing companies.

The updated list of price submitters is as follows:

Notes: These companies are in no particular order. SMM will amend the list based on the selection criteria in this document.

Data providers will not receive incentives, rewards or benefits from SMM for providing data.

2.3.1.3 Process of price data collection

SMM price analyst will collect LFP (power battery) spot price data from price data submitters by means of phone, fax, email, QQ, WeChat and other forms of communication between 9:30 -11:30 China Standard Time (“CST”) on every trading day. (Price data that are submitted after 11:30 CST will not be included in price assessment on the day, while data that does not contain the required minimum information details will not be included either, even if the data are submitted before the deadline) The price data may include prices from transactions completed on the current day, previously unreported prices from the prior day, and the most likely prices of pending transactions, including offers and counteroffers. All communication content on instant messengers, WeChat messaging and emails as well as face-to-face communication will be recorded, while phone communication via phone calls will also be recorded in summary and input into the database. Price data must be a typical, repeatable transaction between unaffiliated market participants (completely financially and legally independent).

SMM price analysts are subject to a code of business ethics when reporting to their supervisors the content of any coerced or threatened communication from market participants, or any kind of induced offer that seeks to influence the outcome of an assessment.

Price data provided by price submitters to SMM should include at least the following kinds of information. Price analysts should encourage the price submitter to report as much detailed information as possible, not just the minimum requirements specified:

LFP (power battery) specifications

LFP (power battery), gram capacity ≥155mAh/g, compaction density ≥2.5g/ cm³, cycle number about 2500 weeks.

LFP (power battery) manufacturers

For the primary producers of LFP (power battery) spot goods, please refer to section 2.5.2 below.

Transaction price/counter offer/offer, etc.

It can be a specific price figure, or a price range in which transactions may be made. (unit: yuan/mt)

Reference volume

During normal market conditions, individual transactions range from a minimum of 80 mt in physical content to a maximum of 800 mt in physical content. These quantities may be adjusted in response to market disruptions, such as force majeure events.

Delivery location and method

Mainstream trading places in China Same day delivery, delivered to your door.

Payment terms

The terms of payment under the negotiated transaction agreement, such as bank remittance, acceptance draft, etc.

2.3.2 Collecting price data from other submitters

SMM's policy on collecting market information and data is that SMM welcomes all information from various sources or organisations, as long as the data submitter provides them for good faith and authentic purposes. However, the data submitter is required to accept the SMM code of conduct on data submitters. SMM does not accept instant messaging requests from unidentified individuals. SMM price analysts are required to confirm the identity of market participants at least in accordance with the procedures specified in 2.3.1.1 before conducting instant messaging communication with the data submitter.

2.4 Detailed formation process and related regulations

2.4.1 Data collection

SMM price analysts will collect price data and information based on the standards mentioned above. And a preliminary raw dataset is finally generated after taking into account major factors, such as offer levels, trading situations in the spot and futures markets, macroeconomics, market transactions, supply and demand, inventory levels, and other major political, economic, and natural factors.

The order of priority: transaction price, quotation/offer, expectation, cross-validation, etc. Analysts will adopt no less than 4 price points every day in order of priority. When the data at the top of the priority list is insufficient, it will be filled in by the subsequent ones.

2.4.2 Data normalisation

SMM price analysts will normalise preliminary data results, and the finalised data will be in the form of a price range that is in line with the actual transactions on the day or the most likely to be traded prices.

Volume normalization

For transactions ranging from 80 to 800 mt in physical content, SMM prioritizes normal transaction prices when daily price inquiries are sufficient. If inquiry points are lacking, SMM will then consider prices from exceptional cases, following quotations, offers, and expectations. In extreme cases where there is only one transaction in the market, SMM will rank this abnormal situation after the ask/bid price but before expected price for reference.

Standardized delivery methods

For cash transactions and transactions with a bill period, SMM will standardize the price based on the acceptance price in the market. For special periods, SMM will take factors such as logistics and freight into consideration.

The price data will be recorded both electronically and in writing. All electronic and written records are archived by analysts and kept at least five years in a secure network environment and physical environment. For more details, please refer to the SMM Recordkeeping Policy.

2.4.3 Information data analysis, verification and screening

SMM will always endeavor to confirm bids, offers and deals information with related parties. SMM will endeavour to verify all the market data obtained by the buyer/seller with the counterparty of the buyer/seller. SMM will perform multi-party verification on information provided by the buyers/sellers with their counterparties, and will cross-validate with other relevant participants if the buyers and sellers are unable or unwilling to provide the information.

SMM will exclude any questionable, irreproducible or apparently abnormal quote and transaction in the price evaluation process, and note the reason for removal in the original data set, which will also be kept at least five years. For instance, SMM ensures that only transactions and quotes made between financially and legally independent parties will be included in the price evaluation process. SMM Price analysts will compare and analyse data submitted by SMM price submitters, verifying whether the prices show trends that run counter to the wider market. The cases include but are not limited to:

a. Traded prices are significantly higher due to the inclusion of special circumstances or special services

b. A company's quotes are intentionally higher due to a special sales plan or policy of the company

c. A company's bids reflect its prospects for the market price and is intentionally made public in advance

If any unusual submissions are detected, SMM Price analysts are required to conduct an investigation. Therefore, SMM defines: if a received quote or transaction data is either 5% higher or lower than the arithmetic average of other normal data, SMM will classify this data as suspect in terms of accuracy (outlier or suspicious transaction). SMM Price analysts will re-contact the price submitter to verify the accuracy, applicability, and completeness of the submitted data. Should it be confirmed that an error occurred during the submission process, such as an input error, etc. SMM will correct the error and re-validate and screen If no errors are found in the submission process, or if it is verified that the data may not reflect the actual conditions of the current trading market. If there is no error in the submission process, it can be concluded that the data submitted by the price submitter is not a qualified data and needs to be removed from the original data set.

The finalised price assessment is in the form of price range.

Minimal subjective judgment from analysts is required in the SMM price evaluation process. The established standards and procedures will be applied to manage the actions taken by SMM price analysts in screening the collected data, and to evaluate the data included in the price assessment is valid or if the abnormal data has been excluded. The expertise of SMM price analysts in the LFP (power battery) market ensures that only data meeting strict methodological requirements is used in the price assessment process. After screening the original data set and removing disqualified data, SMM price analysts will not have any subjective judgment about the normalised data or the price assessments. The SMM Benchmark Management Committee regularly reviews the implementation of these procedures to ensure compliance with its published standards. To attain the highest possible standards, SMM price analysts are trained and regularly appraised in their respective markets in which they are responsible for assessing prices. This ensures that SMM price analysts follow the requirements of the methodology in a consistent manner.

2.4.4 Assessment of published Price

The first step involves taking the final dataset, which exists within a high-low range as derived from the previous section, and categorizing it based on the nature of price data submitters as outlined in section 2.3.1.2. This categorization includes smelting enterprises and downstream enterprises. In this version of the methodology (LFP Power Battery Price Methodology updated on March 30, 2022, and expiring on March 30, 2023), if data also originates from trading companies, an additional category for trading enterprises may be included. The merging process involves splitting the price range data set of each type of enterprise into sets of lower limits and upper limits, assigning weights to these sets, calculating the weighted average, and rounding the result to the nearest whole number. Among which

a. When both transaction data and counteroffer information are present, transaction data is assigned a weight of 70%, and counteroffer information a weight of 30%.

b. If transaction data, counteroffer information, and other information are all present, the weights are 60% for transaction data, 30% for counteroffer information, and 10% for other information.

c. When only counteroffer information and other information are present, the weights assigned are 80% for counteroffer information and 20% for other information.

The second step involves splitting the merged price ranges obtained from the first step into two lower limits and two upper limits, assigning weights, calculating the weighted average, and rounding off the result. In this methodology version (LFP Power Battery Methodology updated on March 30, 2022, and expiring on March 30, 2023), smelting enterprises and downstream enterprises each carry a weight of 50%. If data also originates from trading companies, an additional category for trading enterprises may be included. Assigning weights of 45% to smelting enterprises, 45% to downstream enterprises, and 10% to trading enterprises.

The third step, after 11:30 AM on each trading day, analysts use the above calculations to determine the final published online spot price range.

Based on years of market tracking and feedback, SMM adopts a range pricing combined with a weighted average strategy for assessing the LFP (power battery) spot price. Other strategies, such as weighted harmonic averaging, are prone to data distortion due to random changes in transaction levels and volumes. In addition, since the specific transaction volume of any product cannot be predicted in advance, the price assessment methodology based on transaction volume has the following disadvantages: 1. The small transaction volume will affect the accuracy of the price; 2. If no transaction is reached, price evaluation cannot be performed; 3. If a few data collection points have a disproportionately large share of transactions, it can affect the overall price accuracy.

2.4.5 Special circumstances

SMM reserves the right to exercise judgments when trading liquidity is thin. We will make the assessments based on the economy, relationships between products, transportation and forward market if there is a lack of credible or verifiable market information, so as to make sure that the data samples used to evaluate the spot prices are sufficient and accurate. For more details, please refer to the SMM Illiquid Market Management Policy and SMM Expert Judgment Policy.

In addition, if there is no market information about substantive bids and offers or transactions on the valuation day, or there is only one bid or offer, or the bid/offer price difference is too large to help establish the transaction value, SMM will also in most cases make price judgment, which will be made based on the SMM price range from the previous day.

SMM will not set the minimum trading volumes for the price assessment under circumstances where sparse deals are heard in the market.

2.4.6 Price publication

SMM will establish LFP (Power Battery) Spot Price with reference to the following standards and regulations, and publish it on the SMM official website.

The publication time is CST 12:00-13:00 every working day (except for weekends and public holidays).

The time in between the deadline for price collection (11:30 CST) and the deadline for price publication (13:00 CST) daily is used to verify and calculate the final SMM LFP (power battery) spot price. SMM encourages price submitters not to wait until the final deadline to submit their data information. This is to ensure that SMM price analysts have sufficient time to validate the data, which is then incorporated into the valuation process.

The time of the price publication may also be affected by emergencies and force majeure factors, such as power outages and natural disasters. In such cases, SMM will make every effort to inform the market of the delayed publication schedule as soon as possible. For more details, please refer to the SMM Disaster Recovery Procedures.

The prices published by SMM can be used by any customer who subscribes to the SMM service. The prices published by SMM are protected by copyright. Without an explicit agreement with SMM, any third party may not distribute them or use them for commercial benefit.

2.4.7 Modification of published prices

If there are any errors (mistake in calculation or errors caused by incorrect operations) after the price is published, SMM will immediately issue a correction statement to reflect the correct price. For more details, please refer to the SMM Error Correction Policy.

2.5 Review of key points

2.5.1 Price (product) standard

LFP (power battery), gram capacity ≥155mAh/g, compaction density ≥2.5g/ cm³, cycle number about 2500 weeks.

Major LFP (power battery) manufacturers

Note: The names listed are in no particular order. The SMM LFP (power battery) price includes, but is not limited to, the mentioned enterprises.

2.5.2 Reference volume

SMM sets the typical transaction size that reflects market circulation ranging from 80 to 800 mt in physical content.

2.5.3 Delivery method

Same-day delivery, delivery to factory; by air or truck

2.5.4 Payment terms

Bank acceptance

2.5.5 Delivery location

Buyer's factory warehouse

2.5.6 Unit of pricing

yuan/mt

2.5.7 Format of publishing

Presented in the form of price range (including 13% value-added tax).

2.5.8 Publication time

12:00-13:00 CST on every working day (except for weekends and public holidays).

2.6 Price assessment process

SMM undertakes the spot LFP (power battery) assessment between 09:30-13:30 CST on every working day. The detailed process is as follows:

2.7 Adjustment to the price assessment methodology

SMM updates our methodologies on a regular basis to reflect a constantly changing metals trading market. Amendments will be made based on feedback by market participants, and an internal check will be also made regularly. We will follow the external consultation workflow to amend discrepancies in the methodology that may be less time-sensitive. Major revisions and updates will be published 28 days ahead of the changes, to seek opinions from market participants, unless there are unavoidable and unpreventable circumstances such as natural disasters, war or bankruptcy of the exchange, which will shorten the period. SMM promises to carefully look into any feedback to the adjustment of the price methodologies, and will amend the methodologies under certain circumstances even if some market participants do not approve of the changes. In addition, SMM has a formal methodology consultation process. SMM commits to conducting at least one formal consultation on the LFP (power battery) report annually. Dates of the most recent and the next session are at the start of this document. For more details, please refer to the SMM Methodology Review and changes Policy.

3. Historical data

This paragraph should be read in conjunction with the SMM Record Retention Policy.

Subscribers of Shanghai Metals Market are able to access historical data of SMM LFP (power battery) price since March 30, 2022.

For information on subscribing to historical price data, please visit www.smm.cn.

4. Compliance with SMM Policies

All SMM employees must comply with the methodologies published by SMM, as well as follow SMM's internal standards and policies. They include the SMM Conflict of Interest Policy, SMM Whistleblowing Policy, SMM Error Correction Policy, SMM Methodology Review, Consultation and Modification Policy, and SMM Complaint Policy.