The London Metal Exchange is the global focal point for trading base metals, as it provides a market place for price discovery and a structure that allows all those who want to manage the risk of future price movement the ability to do so. Likewise, those who want to invest in metals to take advantage of price movements can also do that on the London Metal Exchange.
To trade on the London Metal Exchange, brokers are needed to transact deals for customers and investors. The benchmark contract is a contract that will become prompt in 3 months time, hence the main price quoted is the 3 months price. Trades can, however, be traded for a multitude of prompt dates – in copper’s case a trade can be traded for any prompt date between cash to 3 months – 90 days. Then, business dates are available for every Wednesday from 3 months to 6 months. After that, the forward date is every third Wednesday from 7 months out to 123 months.
The Official prices that the London Metal Exchange publishes once a day and that are determined from open-outcry trading show the prices for Cash, 3 Months, and then three December ’third Wednesdays’. The Cash date equals two business days from today – and the Seller or Offer forms the daily settlement price –the global reference price that the metals industry uses as its reference basis for commercial contracts.
The majority of trades conducted on the LME are done for hedging or speculative purposes and the trades are nearly always closed out on the LME before the contract becomes prompt. However, all contracts assume physical delivery, so a contract that is not closed out will result in metal being delivered or received.
A holder of a long contract that is not closed out before delivery receives a LME warrant, while the holder of a short position that is not closed by the time it becomes prompt, is required to deliver an LME warrant to its broker. An LME warrant is a certificate for a specific tonnage of an approved brand of metal in a LME approved warehouse.
More information about the LME can be obtained from the LME’s website www.lme.com.
LME Week October 2013
This is the key metal industry gathering each year. Traditionally, LME Week developed around the time of the year when global metal producers – copper and the Africans most notably – would grandly announce their contract terms for the following year. This used to be the highpoint of the week. Now, the big guys, such as Codelco, will not make such a big fuss about it, and will have their annual terms decided and set out in late-September. Nevertheless, the week remains the key opportunity for the metals trade to meet up, network and do associated deals – and 2013 will be no different. Find out more about LME Week and our plans for this week.
Trading LME Metals
Trading metals on the LME can be done 24 hours a day, although the most liquid time is during the European day where trading is carried out through a combination of the inter-office telephone market, across the open-outcry floor – the ring – or via LME Select, the electronic trading system.
LME Select operates from 01:00 local to 19:00. Ring trading starts in London on Europe’s last open-outcry floor at 11:40 local and continues until 17:00.
The ring and the screen offer the benefits of transparency which attach to a physical, open outcry marketplace, but it is only available for a part of the 24-hour working day. A modern financial market needs to be able to service the needs of its customers for all of the working day, if not longer, and so the LME accommodates this by 24-hour inter-office trading.
For details of how FastMarkets establish the 5pm and 7pm LME closing prices
For details of the current situation with regard to the LME cash to 3 month spread (C-3M)
NOTE: The LME has alerted all its vendors to to changes to exchange fees and new regulation for the use of Wallboards displaying LME data which will come into force from 1 January 2013..read more.