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LONDON METAL EXCHANGE

LONDON METAL EXCHANGE. SOME INFORMATION IN DETAILS PREPARED BY CHIRAG SATHWARA. HISTORY OF LME.

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LONDON METAL EXCHANGE

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  1. LONDON METAL EXCHANGE SOME INFORMATION IN DETAILS PREPARED BY CHIRAG SATHWARA

  2. HISTORY OF LME -The London Metal Exchange Company was formed in 1877 but its origins trace back to the 16th century when the traders in metal and other commodities met on a regular basis in the newly opened Royal Exchange in London. -When Britain became the major exporter of metals in the 19th century, the Royal Exchange filled up with so many overseas commodity merchants that it became difficult to do business. The necessity to find premises for trading arose. During the Industrial Revolution when Britain started importing metals from abroad, trade at irregular intervals put merchants and customers at risk. Therefore, the London Metal Exchange was formed to create a single market, recognize times of trading, and standardize metal contracts.

  3. (CONTI. • The Exchange was closed over the World War II and reopened only in 1952. • In April 2000, an index contract - LMEX - was introduced. It is based on the six primary metals traded on the Exchange: aluminum, copper, lead, nickel, tin, and zinc. Extensive statistical analysis of the performance of LMEX has been executed using historical prices dating back to the 1970s.

  4. PROFILE OF LME Address:-56 Leadenhall Street London EC3A 2DX, UK Trading Hours:- Time varies for different trading platforms. 11.45 am - 5 pm Holiday :-Jan 1-2, Apr 14, Apr 17, May 1, May 29, Aug 28, and Dec 25-26 Securities :-Commodities, futures, traded options contracts (TAPOs), and index contracts. Trading System :- Kea Staff :-D Brydon (Chairman of the LME Limited)S.J.N. Heale (Chief Executive LME Select Screen trading system, Inter-office telephone market, and ring trading.

  5. MEANING OF LME • The London Metal Exchange (LME) is the world’s leading metal market specializing in non ferrous base metals trading. • The LME operates successfully with a turnover in excess of US$4500 billion and market capitalization of around $3000 billion annually. • It plays an important part in maintaining the stability of commodity prices throughout the world.

  6. SERVICES OF LME • Trading Service • Pricing Service • Risk Management Service • Branding Service • Warehousing & delivery Service • Regulation & compliance Service • Arbitration Service

  7. (CONTI. Pricing Service :- • TheLME is a 24-hour market with trading taking place through an inter-office telephone market and LME Select, an electronic trading platform. • Each day the LME announces a set of official prices, which are determined from the open-outcry trading. This trading is highly liquid and trade and industry has confidence that they properly reflect the current supply/demand situation. • These prices are used by worldwide as the basis for contracts for the movement of physical material throughout the production cycle.

  8. Trading Service :- • LME provide industry with access to the market and to the delivery mechanism. • Prospective users of the Exchange can be assured that they are dealing with professional, recognised and experienced trading firms who are fully regulated for the capital and conduct of their business. Regulation of the market is carried out by the LME while the UK’s Financial Services Authority is responsible for regulating the business of LME members.

  9. LME provides some of the trading parts as follow, • Trading Contracts :- • Ring Trading :- • Trading Platforms :- • Trading Calendar :-

  10. Risk Management :- • Through its trading members, the LME offers those at all stages of the metals or plastics supply chain, including both buyers and sellers, the opportunity to hedge their material price risk, and therefore gain protection from future adverse price movements. • Hedging is the process of offsetting the risk of price movements in the physical market by locking-in a price for the same commodity in the futures market. The reasons for doing this are clear: for a converter, for example, it allows for better control of their raw material costs and for a producer, better management of product pricing. • When hedging, an organisation starts with price risk exposure from its physical operations, and will buy or sell a futures contract to offset that price exposure in the futures market.

  11. Branding Services :- • More than 450 brands of material from over 60 countries are approved as ‘good delivery’ against LME contracts. • Material stored in LME warehouses must be of an LME-approved brand or production of an LME-approved producer, conforming to the specifications covering quality, shape and weight as defined by the special contract rules of the LME.

  12. Warehousing & delivery Services :- • As a market of “last resort”, industry can use the LME’s delivery option to sell excess stock in times of over supply and as a source of material in times of extreme shortage. • LME approved delivery locations are typically located in areas of high consumption or a natural trading hub for the shipment of material. • Warehouse companies themselves must also meet strict criteria before they are approved for the handling of metals and plastics. • The LME’s daily stock reports play a major part in the assessment of prices quoted by market makers.

  13. Arbitration :- • LME arbitration is a private dispute resolution system, designed to settle disputes fairly, expertly and economically, without having to resort to action in the UK or other courts. • The LME's arbitration service is generally recognised as the best available to the metals world. • The arbitration rules have been drawn under the framework of English law.

  14. TYPES OF LME • Copper • Aluminium • Silver • Zinc • Lead • Nickel • Steel • Tin

  15. CURRENT PRICES OF LONDON METAL’S Lme official prices (US$/tonne):- For 15 Dec 2008 ALUMINIUM COPPERNICKEL LEAD TIN ZINC CASH BUYER 1441.00 3075.00 10100.00 1015.00 11700.00 1063.00 CASH SELLER & 1442.00 3075.00 10105.00 1016.00 11750.00 1063.00 SETTLEMENT 3 MONTH BUYER 1488.00 3125.00 10270.00 1020.00 11250.00 1080.00 3 MONTH SELLER 1489.00 3130.00 10275.00 1021.00 11255.00 1080.00 15 MONTH BUYER 1640.00 3230.00 10615.00 1055.00 10850.00 1157.00 15 MONTH SELLER 1645.00 3240.00 10715.00 1060.00 10900.00 1162.00 27 MONTH BUYER 1755.00 3320.00 10945.00 1080.00 N/A 1215.00 27 MONTH SELLER 1760.00 3330.00 11045.00 1085.00 N/A 1220.00

  16. Lme opening stock (in tonne) :- DATEALUMINIUMCOPPER NICKELLEAD TIN ZINC 15 Dec 2008 1932575 314825 69948 43975 4765 229600

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