London Metals Exchange
From IntFX
(Also see LME Data for London Metals Exchange data)
The London Metals Exchange, also known as LME, is the largest market in options and futures contract that is based in non-ferrous metals. Founded in 1877, the London Metals Exchange traced its origins from resources trading of the Royal Exchange. The initial trading started only for copper followed by lead and zinc. The trading of aluminum was instituted in 1978 followed by nickel in 1979, aluminum alloy on 1992, and silver in 1999. These traded metals along with other base metals constitute a total of $2 trillion annually.
In 2005, the London Metals Exchange expanded their futures contract for plastics. In 2007, the London Metals Exchange offered trading for smaller quantities for copper, aluminum, and zinc.
The London Metals Exchange as a futures market sets to facilitate futures trading on applicable and transparent market structures. It hopes to provide a forum to help predict the price of these base metals in the future. It serves as a safety net against volatile and ever-changing prices in the metals and plastics market. The prices of these metals as “discovered” by the London Metals Exchange serves as the benchmark for other industries in the world.
The London Metals Exchange has reached high liquidity with achieved volumes of 87 million lots in 2006. The volume of lots in the London Metals Exchange is equivalent to US$8.1 trillion annually or US$35-45 billion on an average business day. The London Metals Exchange represents a global futures market with 95% of its business transactions and exchanges coming from the international market.
Trading in the London Metals Exchange is only permitted to member companies. The London Metals Exchange members provide the physical infrastructure and access to the market along with information analysis, risk management tools, and delivery mechanisms. As with the New York Stock Exchange, the London Metals Exchange takes place along three trading platforms; the outcry auction environment, inter-office trading, and electronic trading.
The London Metals Exchange offers three core services for its exchange facilitations. First, the London Metals Exchange provides a forum to help “discover” the prices of metals on a daily basis. These price predictors are written and published daily as the basis for price negotiation for the physical sale of these metals or plastics. Secondly, the London Metals Exchange offers risk management tools to facilitate hedging and protection for future price movements. The London Metals Exchange also offers delivery points of last resort which serves as the metal “granary” for at a time of oversupply and shortage. Companies can sell their metals during oversupply and acquire the same resources during shortage. This ensures that the volatility of price changes in the futures market is placed at minimum risks.
The London Metals Exchange is not only a marketplace for metals trading but also a source of reliable and accurate information on metals prices. Its relevance in the global economy lies as the main indicator for the prices of these metals. The London Metals Exchange serves as indicators for physical activity across the world. The London Metals Exchange also offers storage of these metals for physical delivery of approved brands of non-ferrous metals.
[edit] Uranium Contract
The London Metals Exchange is exploring launching a physical uranium contract that could involve setting up a storage area for traded uranium.
According to industry sources, global mining giant BHP Billiton is one of the companies that have approached the LME about setting up a contract. One major issue yet to be addressed is where the product would be stored.
Uranium is currently sent from mines around the world to one of the several major commercial uranium conversion facilities in Europe, Russia and North America. Because nearly all uranium for nuclear power plants is funneled through one of these conversion facilities, some market players believe the conversion operators have too much market information.
They believe an LME contract would help jump-start the moribund uranium spot market, but add that if a uranium market is to develop as have other commodity markets, there will need to be a level playing field for all participants.
Except for Springfields in the UK and the ConverDyn facility in the US, the major conversion facilities are run by companies that also are big players in the uranium market, such as Cameco, Areva and units of Russia's Atomeneregoprom.
To overcome market edge, industry sources said LME is exploring establishing a "neutral" uranium storage area to ensure the market is not dependent on uranium stored at the world's few conversion facilities or at mines.
The sources added that industry backers of the idea are shopping for a storage area in the UK. At least one of the sites said to be under consideration is an old conversion facility once operated by British Nuclear Fuels, and now by Westinghouse, at Springfields in Lancashire, England.
"They have heaps of storage space at Springfields," one source said. Westinghouse spokesman Vaughn Gilbert said Wednesday that he had no knowledge of any discussions about use of the site for uranium storage. [1]
