LORD COPPER: The year that was …

The metal industry's year was dominated by two big takeovers.

The metal industry's year was dominated by two big takeovers.

For the LME and its members, there’s no doubt what was the biggest story of 2012.

The sale of the exchange to Hong Kong Exchanges & Clearing (HKEx) ended more than 100 years of independence and self-government, and the market is now one part of an exchange-owning conglomerate rather than, effectively, a mutual association of players from the same industry.

Big money changed hands, and since I don’t believe anybody was carrying their LME stake in the balance sheet at a price remotely close to what they ultimately received, it should flow straight to the P&L.

How material it is and how it’s distributed (corporate treasury, bonus pool, dividends, for example) will depend on the institution but, in some cases, I bet it will make the year.

Now, after the party, of course, comes the hangover.

The capital has been banked – and that’s the gain.

Now for the pain.

The fees for the LME’s users won’t go up immediately – we know there is a moratorium on that – but they will go up. The new owner has admitted as much, by pointing out that the fees are starting from a comparatively low base. Members may not like that, but they are now only members, not owners, and the world is different.

They will have a user group or committee to represent their position opposite the owners, but that is very different from the opportunity to be elected by your peers to be on the body that runs the exchange.

The ceo whom the members employed to manage the business will no longer be on the controlling board and will only be an observer on the user group; I’m not saying this is good, bad or indifferent (and I’m certainly not changing my oft-stated view that I too would have taken the money) but the world is going to get a lot harsher.

The other merger...
The other big story of the year, of course, has been the drawn-out saga of the Glencore-Xstrata merger.

For all the to-and-fro over price, control, retention payments and so on, the end-result promises to work out well. Glencore and its predecessor company has been the pre-eminent commodity trader for a long while, built on its ability to deliver to customers what they want. Adding a prominent mining base to that logistic framework should enable the company to move forward, hopefully taking its customer base along as well.

Back to more directly LME-related issues, and warehousing has continued to dominate the thoughts of many.

HKEx ceo Charles Li has admitted that this was the subject that kept him awake at night during the bid period. And well it might; the solution to the problem seems as elusive as ever.

During the year, the copper committee took the dramatic step of delisting Vlissingen as a good delivery point for copper, to prevent the red metal being caught in a queue behind cancelled aluminium warrants. That was a sensible decision to avert a looming problem, but it’s not the real answer.

That lies in political economics, at governmental level. There is a nasty situation building, with a glut of aluminium overhanging the market which will threaten prices at some point.

Don’t blame players at the operational level, it’s those who created the framework who need to understand what they have done.

MF Global collapse still haunts account holders
Lack of clarity or understanding among politicians and/or regulators seems also to have condemned the poor old MF Global account holders to another year of uncertainty.

What should have been straightforward – a bankruptcy in a broker of exchange-traded products – seems to have created as much of a problem as if it had been a institution holding rafts of OTC contracts with no clearing house in sight. Still, I suppose the politicians just point at financial services and say it’s all their own fault, anyway.

These are just a few of the main stories of the year. No wonder it’s not just Charles Li who sometimes lies awake at night.

And finally...
I’d just like to thank the readers of this column for their attention. During the calendar year, I’ve written about fifty pieces, and pretty much all of them have featured in MB’s weekly ‘Most Read’ list.

That’s down to you all, so I thank you very much and hope I can continue to write stuff that you find interesting.

Hope you are all enjoying the holiday season, and, in case I don’t write another article this year, I wish you a Happy and Prosperous New Year. Remember what Peter Mandelson (a man for whom my respect is very strictly bounded, in general) said at the LME Dinner – the metal industry is part of the very bedrock, the real backbone, of the way our society works.

So it’s an important business we are all involved with.

For more reviews of 2012, click here.

Lord Copper 
editorial@metalbulletin.com

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