What is LME
The London Metal Exchange is the world centre for the trading of industrial metals – the majority of all non-ferrous metal futures business is transacted on our platforms.In 2021, 145 million lots were traded at the LME equating to $15.6 trillion and 3.3 billion tonnes notional, with a market open interest (MOI) high of 2.1 million lots. A member of HKEX Group, the LME brings together participants from the physical industry and the financial community to create a robust and regulated market where there is always a buyer and a seller, where there is always a price and where there is always the opportunity to transfer or take on risk – 24 hours a day.
Price-risk management
The LME is a meeting place of buyers and sellers of metal futures and options. LME provides producers and consumers of metal around the world with the best way to manage their exposure to the risk created by metal price volatility.
Producers (those who sell the metal they mine and refine) are at risk of prices falling, and consumers (those who buy and make things from metal) are at risk of prices rising.
Hedging against these price movements using LME futures and options enables the metal industry to focus on their core business
Benefits of hedging:
- protect against adverse price movements
- lock in margins and offer long-term fixed prices to customers
- improve budget forecasts
- turn inventory into cash or security for finance
- protect physical inventory against price falls
- hedge physical purchases in times of production difficulty
Price discovery
The LME is the de facto price formation venue for non-ferrous metals. The prices “discovered” on LME platforms are used as the global reference and basis for physical trading as well as in the valuation of portfolios, in commodity indices and metal ETFs
LME is the most liquid and most traded industrial metals market in the world. LME’s global network of warehouses ensures these prices are truly reflective of supply and demand. Real-time bid and offer prices are available 24 hours a day via our market data service LME live and also from approved data vendors. The LME also aggregates and publishes a set of reference prices that are based on highly liquid periods of the trading day. The LME is also home to the LBMA Platinum and Palladium Prices, which are discovered in a twice-daily auction. This pricing solution is delivered via LMEbullion, our custom-built electronic platform.
Types of LME contracts
LME futures Physically settled contracts daily out to 3 months, weekly out to 6 months and monthly up to 123 months; cashsettled contracts out to 15 months
LME traded options American-style monthly options up to 63 months
LME TAPOS (traded average price options) Asian-style monthly average-price options up to 63 months
Monthly Average Futures A contract where the difference between the ‘fixed’ price and ‘floating’ Monthly Average Settlement Price (MASP) is financially settled
LMEminis Small-lot, cash-settled monthly futures out to 12 months
HKEX London Minis Small-lot, cash-settled monthly futures traded on HKEX, traded and priced in renminbi and US dollars
History of the LME
The London Metal Exchange can be traced back as far as the opening of the Royal Exchange in London in 1571, where traders in metal and a range of other commodities began to meet. As Britain became a major exporter of metals, European merchants began to arrive to join in these activities.
According to the LME’s website, the origin of the “ring” tradition began in the early 18th century in the Jerusalem Coffee House. Here, a merchant with metal to sell would draw a circle in the sawdust on the floor and call out “change!” All those wishing to trade would assemble around the circle and make their bids and offers.
In 2012, the LME was acquired by the Hong Kong Exchanges and Clearing. Consolidation has become a common trend among the world’s exchanges as they battle to reduce costs and boost their survival prospects in a highly competitive sector. For example, the CME Group acquired the New York Mercantile Exchange (NYMEX) in 2008. NYMEX, in turn, had merged with the Comex commodities exchange in 1994, creating the largest physical commodity exchange at the time.