3932_A_guide_to_the_LME

8/3/2019 3932_A_guide_to_the_LME

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A Guide to the LME



A Guide to the LME | 1

Contents

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London Metal Exchange – Setting the Global Standard

Price risk management – the preect hedge

The world’s price ormation venue – what’s in a price?

Warehousing, branding and price convergence– the physical market o last resort

The contracts and the metals – today’s innovation, tomorrow’s standard

Trading – unparalleled opportunity to transer or take on risk

Other services



The LME brings together participants rom the

physical industry and the nancial community

to create a vital, robust and regulated market

where there is always a buyer or seller, where

there is always a price and where there is always

the opportunity to transer or take on risk –

24 hours a day.

Investors value the LME as a vibrant utures

exchange but also or its close links to industry.

The possibility o physical delivery via the

world-wide network o LME-approved

warehouses makes it the perect hedging venue

or industry and the world gains a benchmark

price they trust.

The Exchange provides producers and

consumers o metal not only with a physical

market o last resort but also, perhaps most

importantly o all, with the ability to hedge

against the risk o rising and alling world

metal prices.

It’s what we’ve been doing since 1877.

London Metal ExchangeSetting the Global Standard

o global non-errous utures

business is transacted on

our platorms

Over

80%

The London Metal Exchange is the world centre orthe trading o industrial metals – more than 80% o all non-errous metal utures business is transactedon our platorms.

$11.6trillion notional

2.7billion tonnes

120

million lots

LME non-errous metalstrade 30 times worldproduction

Annual Trading

2 A Guide to the LME | 3




Producers (those who sell the metal they mine

and rene) are at risk o prices alling, and

consumers (those who buy and make things

rom metal) are at risk o pri ces rising.

Hedging against these price movements

using the LME’s utures and options contracts

enables the metal industry to ocus on their

core business – namely, producing metal and

making things out o metal.

Benets o hedging

• Protectagainstpricemovements

• Lockinmarginsandoerlong-term

xed prices to customers

• Improvebudgetforecasts

• Turn inventory into cash or security or fnance

• Protectphysicalinventoryagainstpricefalls

• Hedgephysicalpurchasesintimes

o production diculty

Price risk managementthe perect hedge

The LME is a meeting place o buyers and sellers o metalutures. It provides producers and consumers o metalaround the world with the best way to manage theirexposure to the risk created by metal price volatility.

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Our prices are trusted because the LME is the

most liquid and most traded i ndustrial metals

market in the world and its global network o

warehouses ensures the price is truly refective

o supply and demand.

Real-timebidandoerpricesareavailable

24 hours a day via approved data vendors

including LMElive. The LME also aggregates

and publishes a set o benchmark prices thatare based on highly liquid periods o the

trading day.

The LME is the de actoprice formation venue for industrial metals. The prices‘discovered’ on our platormsare used as the globalbenchmark and basis orphysical trading as wellas in the valuation o portolios, in commodityindices and metal ETFs.

The LME Ocial Price is the last bid and

oerquotedduringthesecondopen-out

cry (or Ring) session and the LME OcialSettlementPriceisthelastcashoerprice

The LME Unocial Price is the last bid and

oerquotedduringthefourthRing

The LME Closing Price (also known as the

Evening Evaluation) is determined by

the LME Quotations Committee ater

the close o trading on the Ring

The LME Asian Benchmark is calculated on

the volume-weighted average price (VWAP)

o trades transacted on our electronic

trading platorm, LMEselect, between

07.00–07.15 or 08.00–08.15 during

British Summer Time (BST)

What are they and how

are they calculated?

LME Ofcial and Ofcial Settlement Price

LME benchmark prices

LME Unofcial Price

LME Closing Price (or Evening Evaluation)

LME Asian Benchmark

The LME Ocial Price is used as the global

benchmark or physical contracts and the

LME Ocial Settlement Price is the priceat which all LME utures are settled

The LME Unocial Price is a good indicator

o aternoon trading and is used as a

reerence price

Used by LCH.Clearnet and LME members

or calculating margins

The LME Asian Benchmark provides traders

with a useul early-day guide to trading

in one o the most signicant and liquid

periods o the day

How are they used?

Cash, 3 months and

3–orward December

prices* (which rollannually)

Cash, 3 months and

3–orward December

prices* (which roll

annually)

All prompt dates

3-month

LME Aluminium,

LME Copper and

LME Zinc

Prompt dates

12.30–13.20

15.40–16.15

(ex minors)

USD

LME Provisional

Closing Price: rom

approximately 17.30.

LME Closing Price: rom

approximately 18.15

07.30 (08.30 BST)

When are they

published?

USD (we also publish

exchange rates or EUR,

GBP, JPY)

USD, EUR, GBP, JPY

USD (we also publish

exchange rates or EUR,

GBP, JPY)

Currency

6

The world’s priceormation venuewhat’s in a price?

*15 and 27 month LME Ocial, Settlement and Unocial Prices cease April 2012




The combination o price convergence, the

global reach o the LME’s storage acilities

and listed metal brands, the act that physical

deals are negotiated using LME prices and our

unparalleled levels o liquidity means the world

gains a price it trusts.

In times o extreme shortage or over supply the

LME also provides producers and consumers

with a physical market o last resort.

LME warehouse companies must meet strict

criteria beore they are approved and are

typically located in high-consumption areas

or logistical trading hubs or the shipment

o material.

All metals stored in LME-approved storage

acilities on warrant must be LME-approved

brands rom LME-approved producers ensuring

conormance to the Exchange’s strict rules on

commodity grade, quality and shape.

Warehousing, brandingand price convergencethe physical market o last resort

Our utures market complements the physical. Althougha very small proportion o LME trades actually result inphysical settlement, the possibility o physical delivery –supported by 700 international storage acilities and 500LME listed brands – results in pr ice convergence ensuringour prices remain in line with the physical industry.

4.7million tonnesdelivered in andout annually

500

LME brands rom55 countries

700LME-approved storageacilities across 37locations in 14 countries

LME-metal producing regions

Delivery locations




The LME prides itsel on the unique

settlement-date structure o its contracts

and its ocus on the physical market.

Designed to refect the nature and timing o

bilaterally negotiated metal trades, market

participants can use the LME’s contracts to

transer or take on risk against metal prices daily

out to 3 months, weekly out to 6 months and

monthly out to anything up to 123 months –

that’s over 10 years in the uture.

Through our fexible prompt-date structure,

large lot sizes that refect industrial usage,

and range o contract types the LME provides

participants with unparalleled opportunity

to transer and take on risk.

Types o LME contract

LME uture

Physically settled contract daily out to

3 months, weekly out to 6 months and

monthly up to 123 months

LME TAPO (Traded Average Price Option)

Asian-style monthly average-price option

up to 63 months

LME traded option

American-style monthly option

up to 63 months

LMEmini

Small-lot, cash-settled monthly uture

out to 12 months

The contracts and the metalstoday’s innovation, tomorrow’s standard

O the industry or the industry, the LME’s products andservices are designed with the metal community in mindand that is what makes the LME unique.

What is a ‘uture’?A ‘uture’ is the obligation to buy or sell astandard quantity o a specied asset (metal)on a set date, at a xed price agreed today

What is an ‘option’?An ‘option’ is the right, but not the obligation,to buy or sell a utures contract at a price(the strike price) agreed today

What are ‘prompt dates’? The date by which an LME warrant mustbe delivered by the seller and paid or bythe buyer o a utures contract. Also k nownas ‘settlement date’




LME Aluminium

LME Aluminium Alloy

LME Copper

LME Lead

LME Nickel

LME NASAAC

LME Tin

LME Zinc

LME Steel Billet

Metal

Non-errous metals

25mt

20mt

25mt

25mt

6mt

20mt

5mt

25mt

65mt

Lot size (tonnes)

Ingots

Small Sows

Large Sows

T-bars

IngotsSmall Sows

Large Sows

T-bars

Cathodes

Ingots

Cathodes (ull plate or cut)

Pellets

Briquettes

Ingots

Small Sows

Large Sows

T-bars

Ingots

Ingots

Billets

Shape

P1020A high grade primary aluminium

A380.1, 226 or AD12.1 aluminium alloy

BS EN 1978:1998 (Cu-CATH-1) grade A copper

BS EN 12659:1999 standard lead o 99.97% purity (minimum)

B39-79 (2008) primary nickel o 99.80% purity (minimum)

LME NA380.1 North American special aluminium alloy

BS EN 610:1996 tin o 99.85% purity (minimum)

BS EN 1179:2003 special high-grade zinc o 99.995% purity (minimum)

Nine LME grades o multiple tolerances

Quality

Futures

Traded options

TAPOs

LMEminis

Futures Traded options

TAPOs

Futures

Traded options

TAPOs

LMEminis

Futures

Traded options

TAPOs

Futures

Traded options

TAPOs

Futures

Traded options

TAPOs

Futures

Traded options

TAPOs

Futures

Traded options

TAPOs

LMEminis

Futures

Daily: out to 3 months

Weekly: 3 out to 6 months

Monthly: 7 out to 123 months (63 or TAPOs and traded options)

Daily: out to 3 monthsWeekly: 3 out to 6 months

Monthly: 7 out to 27 months



Monthly: 7 out to 123 months (63 or TAPOs and traded options)



















Automotive, transport, construction,

aeronautical, packaging

Automotive, transport, construction,aeronautical, packaging

Electricals, construction

Batteries

Stainless steel

Automotive

Plating, soldering

Galvanisation, brass

Construction 2008

LME Cobalt

LME Molybdenum

1mt

6mt

Cathodes (broken or cut)

Rounds

Briquettes

Ingots

Powder packed in drums

99.30% pure cobalt

Between 57 and 63% molybdenum contained in roasted

molybdenum concentrate (RMC)

Futures

Futures







Batteries, turbines, paints

Alloying agent in steel

(stainless and construction)

2010

2010

Contract types Prompt dates Main industry uses First listed

Minor metals

Ferrous

1978

(1987 current

specication)

1992

1877

(1986 current

specication)

1920

1979

2002

1877

(1989 current

specication)

1920

(1986 current

specication)

Daily prompt dates Weekly prompt dates Monthly prompts to 12, 15, 27, 63 or 123 months

Cash 3 months 6 months

LMEminis Tin,

molybdenum,

cobalt & steel billet

Aluminium

alloy &

NASAAC

Lead,

nickel

& zinc

Aluminium

& copper

12 15 27 63 123

The metals

All contracts quoted in US dollars and clearable in US dollars, pound sterling, Euro and Japanese yen

*Prompt dates or TAPOs and traded options are:

LMEAluminium Monthly out to 63 months, LMEAluminiumAlloy Monthly out to 27 months, LMECopper Monthly out to 63 months

LMELead Monthly out to 15 months, LMENickelMonthly out to 27 months, LMENASAAC Monthly out to 27 months

LMETinMonthly out to 15 months, LMEZinc Monthly out to 27 months




Participants wishing to trade on the LME must

do so with one o our member rms. This can

be done either directly with an LME member

or through member-sponsored access to LME’s

electronic trading platorm.

Counterparty risk is mitigated by LCH.Clearnet

which clear all LME contracts guaranteeing both

sides o a trade in the event o deault.

As a Recognised Investment Exchange, the

LME has a statutory requirement to ensure

that business on our markets is conducted in

a air and orderly manner, providing proper

protection to investors. The LME is regulated by

the Financial Services Authority (FSA). The FSA

also regulates those LME members that conduct

investment business.

Metal utures and options are traded on three platormsat the London Metal Exchange.

Trading hours

Description

The Ring

11.40–17.00

Open-outcry trading foor. Liquidity is

concentrated into ve-minute sessions

known as Rings. LME Ocial, Unocial

and Closing Prices are all, or in part,

derived rom trading activity on the Ring

LMEselect

01.00–19.00

Electronic trading. LME Asian Benchmark

derived by trading on LMEselect

Inter-ofce telephone

24 hour

Members’indicative quotes are distributed

via the vendor network and can be

executed by telephone

Tradingunparalleled opportunity to transfer or take on risk



16

Education The LME provides an extensive and worldwide

programme o training courses or the metaland nancial industries. These range rom

the popular introductory courses, which are

designed to give an understanding o the

core services o the Exchange and provide the

opportunitytolearnhowtoeectivelymanage

the impact o price volatility through the use o

utures and options, to more specialised courses

across a number o key areas, including market

analysis and hedge accounting.

www.lme.com/education

DataPricing data can be accessed via the LME’s

network o vendors including LMElive, our ownreal-timepriceanddataservice.LMEliveoers

the opportunity to monitor price volatility with

live or 30-minute delayed data and provides

a comprehensive view o utures and options

trading with easy access via your laptop, PC

or mobile device. Subscribe or a 4 week ree

trial at:

www.lmelive.com

www.lme.com/data

Precious metals The LME provides market data and post-trade

services to the precious metals community.It produces a orward curve data set, published

daily on behal o the London Bullion Market

Association, to bring new levels o transparency

to the world’s largest over-the-counter (OTC)

gold market. In addition the LME, in partnership

with LCH.Clearnet, provides OTC post-trade

matching and clearing services or gold traded

on London’s bullion market.

www.lme.com/precious

Other services

Contacts

Branding: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]: [email protected] metals services: [email protected] ofce: [email protected]:[email protected] and storage: [email protected]

Tel: +44 (0)20 7264 5555



The London MeTaL exchange LiMiTed | 56 Leadenhall Street, London EC3A 2DX

Tel +44 (0)20 7264 5555 | Fax +44 (0)20 7680 0505 | Email [email protected]

Singapore Representative Oce, 30 Raes Place #19-03, Chevron House, Singapore 048622

Tel +65 (0)6535 5035 V1.0/0811

Nothing in this document constitutes an

ofer or a solicitation o an ofer to buy or sell

any security or other nancial instrument

or constitutes any investment advice or

recommendation o any security or other

nancial instrument. To the best o the LME’s

knowledge and belie, statements made are

correct at the time o going to press.

All such statements and all opinions

expressed herein are published or the general

inormation o readers but are not to be taken

as recommendations o any course o

action. The LME accepts no liability or the

accuracy o any statement or representation.

LME contracts may only be ofered or sold

to United States oreign utures and options

customers by rms registered with the

Commodity Futures Trading Commission

(CFTC), or rms who are permitted to solicit

and accept money rom US utures and

options customers or trading on the

LME pursuant to CFTC rule 30.10.

© The London Metal Exchange Limited,

2011. No portion o this publication

may be reproduced without written

consent. The London Metal Exchange

logo is a registered trademark o

The London Metal Exchange Limited.

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3932_A_guide_to_the_LME