Speaking at the LME Week annual dinner on Tuesday October 9, Chamberlain said: “For the LME, 2018 should be remembered as the year that our volumes returned to growth, and our exchange returned to confidence.”
He accepted that the LME cannot take credit for events beyond its control, such as the volatility created by “macroeconomic forces and geopolitical tides.”
“Despite the challenges this year - our opportunities are equally apparent and demonstrated by the LME’s increased volumes this year,” Chamberlain said.
“It is in times of great volatility that the volume of LME hedging, and the potential of LME speculation, becomes most apparent to our customers – and that spark can truly light the fire for our members and our exchange,” he added.
When the US sanctions were announced against UC Rusal, daily trading volume on the LME climbed to extremely high levels. Aluminium hit its record highest trading volume with 41,936 lots traded on April 19.
Between April 9 and April 23, 11 trading days, a record 358.674 lots of aluminium was traded on the LME.
Despite increased volumes being linked to the numerous political factors affecting the market this year, Chamberlain also credits the LME’s Strategic Pathway with bringing back volume.
In September 2017, the exchange launched its Strategic Pathway which was a market-wide consultation on factors relating to how members use the exchange and how it can adapt to changing market conditions. It led to a reduction in short- and medium-dated carry fees to entice volume back onto the exchange.
The fee discounts came into effect from October 2017, originally on a one-year trial. In September 2018, the exchange decided to continue the discounts indefinitely.
“I strongly believe that there is another reason for our return to growth and that is the investment we and our market have made in the strength of our ongoing relationship,” Chamberlain added.
A number of market participants have questioned whether the LME regrets its fee discounts, given that volumes may have partially recovered this year due to the volatility in the market.
But Chamberlain disagrees, saying: “It is only because of the discounts that the LME could play a central role throughout 2018’s economic turbulence.”
In the most recent volume report, the LME reported that its August's average daily volume (ADV) across all contracts was up 9.7%, but base metal volume was a huge percentage of this.
Aluminium ADV was up 14.7% to 256,638 lots from a year ago, while lead’s ADV was up 19.2% and nickel climbed 12.2% year on year.
Closing price decision will be based on ‘evidence not emotion’
Chamberlain said that given the diversity of views on the topic of the electronic closing prices trial, the LME could not responsibly have taken no action.
“But we could not reasonably take action without further study so we have committed that any decision on change, or equally no chance, will be informed by a full scientific experiment,” Chamberlain said.
“Basing our decision on evidence not emotion, on facts not sentiment,” he added.
The LME announced that it will begin testing the electronic trading of close prices in early 2019, starting with nickel. During the trial, the closing price of will move off the Ring and on to LME Select.
Chamberlain said that the LME will conduct and assess the trial in an entirely unbiased and dispassionate manner.
“The most important consequence of this constructive relationship between the LME and its market is that we can now turn our collective attention to challenges that we face and that will define our industry and our business over the coming years,” Chamberlain concluded.
The London Metal Exchange benefitted from 2018’s “economic turbulence” and the exchange should be proud of its growth in volume, LME chief executive Matthew Chamberlain said.