The London Metal Exchange (LME) is a commodities exchange based in London, UK. The exchange offers derivatives like futures and options contracts on a range of metals, including copper futures, aluminium alloy and silver. This article will run through what the LMEe is, its history, the metals traded and much more. There is also a guide to help you start investing in assets on the exchange and we have compiled the top brokers for London Metal Exchange trading below.
What Is The London Metal Exchange?
The London Metal Exchange is a futures and forwards exchange featuring the world’s largest market for futures contracts on metals. The exchange offers contracts on base metals, as well as ferrous metals, precious metals and electric vehicle metals. It is the world centre for industrial metals trading, with the majority of all non-ferrous metal futures business transacted on the exchange. As a result, people from India to the US regularly visit the exchange.
The London Metal Exchange is owned by Hong Kong Exchanges and Clearing Ltd. (recognisable worldwide with their simple HKEX logo), the group that also owns the Hong Kong Stock Exchange and Hong Kong Futures Exchange. HKEX are the sole shareholders of the London Metal Exchange, and therefore there is no listed share price for the company. Instead, members can purchase B-shares in LME Holdings Limited.
According to its 2019 annual report, the London Metal Exchange had a trading volume of 170 million lots, worth over $12 trillion in notional value, though no market cap data was released. Even though revenue fell in 2020 due to the coronavirus pandemic, the exchange remains one of the largest of its kind.
History Of The London Metal Exchange
The origins of the London Metal Exchange can be traced as far back as 1571 with the opening of the Royal Exchange in London. Before the creation of the exchange, business between traders was carried out in London coffee houses, where the trading ring tradition began.
The London Metal Exchange was founded in 1877. At first, the only metal traded on the exchange was copper (rate and scrap copper both had prices), although zinc and lead prices were soon added in 1920.
Upon the outbreak of World War 2, the London Metal Exchange was closed. It would not re-open until 1953. Following this, many new metals were added to the inventory of the exchange. In 2011, the exchange stopped trading plastics. The London Metal Exchange was under the ownership of its members until 2021 when Hong Kong Exchanges and Clearing Limited purchased the LME for £1.4 billion.
Metals Traded On LME
There is a whole host of metals traded on the London Metal Exchange. Inventory data, such as the daily live prices of copper or gold price per kg, is available to download on its website but here is a breakdown of the various commodities on offer.
The London Metal Exchange is the largest non-ferrous metal exchange in the world featuring many different products:
- Aluminium Alloys
On top of their non-ferrous range, the London Metal Exchange also trades ferrous metals. The focus is on steel, with prices for steel scrap and steel rebar, as well as steel HRC from China, North America, Europe and India.
The London Metal Exchange features a range of minor metals, typically used in electric vehicles:
The London Metal Exchange lists precious metals including:
- Palladium Price
- Rate Gold Price
- Platinum Price
- Silver Price
Metals That Are Not Traded
While the London Metal Exchange does offer contracts for a lot of different metals, some are not listed on the exchange. Traders will not find iron ore prices listed on the UK based exchange, nor will they find titanium, brass, antimony, bronze, vanadium, manganese, zirconium, bismuth, bauxite, tungsten (wolfram), indium or iridium price.
A key part of understanding the London Metal Exchange is to know the types of contracts available. Contract lengths can vary from one week to multiple months or even multiple yearlong contracts. The main types of contracts will be explained briefly here.
A futures contract on the London Metal Exchange works as any other future would. These are an obligation to buy or sell the specified asset (metal) on a set date and at an agreed fixed price. Any futures that are not closed out by an opposite purchase are physically settled.
An option is similar to a future. In this case, the option provides the right, but not the obligation, to buy or sell the specified asset (metal) on a set date and at an agreed fixed price. Using options contracts on the London Metal Exchange warrants further hedging on trades and investments due to the increased flexibility.
TAPOs are Traded Average Price Options. They are another flexible way for the London Metal Exchange to hedge against fluctuating metal prices. TAPOs are financially settled Asian options. The payoff is dependent on the Monthly Average Settlement Price (MASP) for the contract month.
Monthly Average Futures
This instrument is designed for London Metal Exchange members who need to hedge against the monthly average price. It is the first of its type in the world. Participants enter into a fixed price and settle the difference against the floating price (the Monthly Average Settlement Price or MASP) at the end of the averaging period. A keen trader always notices the fluctuations during the month and uses this tool to hedge against them.
Trade At Settlement
At the London Metal Exchange, trade-at-settlement (TAS) contracts are only available on LME 3-month Nickel. Participants use TAS contracts to enter an order to buy or sell a contract at a price that is either equal to, or several ticks above or below, the yet to be established 3-month closing price.
Participants should have studied the nickel price history before entering this contract. Once the closing price is set, the TAS order delivers the 3-month contract.
HKEX London Minis
HKEX London Minis are designed specifically for Asian participants. They are traded and priced in CNH or US dollars and are available in six metals: aluminium, zinc, copper, nickel, tin and lead.
These are five-tonne cash-settled monthly futures contracts. They are settled against the London Metal Exchanges ‘parent’ contract, LME Official Settlement Price. Investors can be confident that the price at settlement is reflective of global supply and demand.
The London Metal Exchange Index consists of six metals with the following weights: aluminium (42.8%), copper (31.2%), zinc (14.8%), lead (8.2%), nickel (2%) and tin (1%). The weightings are derived from trade liquidity and global production volume over five years. The forecast for the index can be found at tradingeconomics.com.
The London Metal Exchange has three different methods of trading: open outcry, electronic trading and telephone trading. Open outcry is the traditional form of trading where traders meet face-to-face on the trading floor in pits or rings at set times of the day. The LME is the only remaining physical commodity exchange in Europe and it is currently bucking a global trend of switching completely to electronic trading.
After closing for covid and then being slated to close permanently, the London Metal Exchange announced the news that they were “to reopen trading floor” after uproar from the public and high-profile individuals like Nigel Farage.
Electronic trading has been used at the London Metal Exchange since 2001. The exchange uses its platform, LME Select, to facilitate this form of trading, allowing people to trade from home or foreign offices. This platform now handles the majority of LME business.
Ring trading is a tradition at the London Metal Exchange that has stood for years. Ring trading is very important to the process of price discovery, which is how official prices are set. There are two ring trade sessions in the morning and afternoon. Each of the nine metal contracts is traded in two blocks with a five-minute session for each.
Traders with Ring Dealing membership are entitled to trade in the ring. In total, nine companies have the exclusive right to trade in the ring. In addition to these nine, there are around 100 companies involved in the London Metal Exchange.
Delivery Points & Hedging
While most contracts on the London Metal Exchange are used to hedge against market fluctuation, the LME delivery option can be used if needed. The LME has a network of over 600 warehouses in 15 countries. Metal stocks are kept in these warehouses should delivery need to be completed. Only around 1% of trades use the delivery service.
London Metal Exchange Rules & Regulations
The London Metal Exchange has a set of rules and regulations that members must follow. These are set out in the LME Rulebook, which can be found on the exchange’s website. The LME Daily Position Reporting System (DPRS) enables members to submit information to the Compliance Support System (CSS).
As an exchange operating in the UK, the London Metal Exchange comes under the jurisdiction of the Financial Conduct Authority (FCA).
Working and trading hours at the London Metal Exchange vary for the different trading methods. Ring trading occurs in two sessions. The first is the morning session, beginning at 11:40 and ending at 13:15 GMT. The second is the afternoon session, beginning at 15:00 and ending at 17:00 GMT.
The opening time for the LME Select electronic trading system is 01:00, which stays live until 19:00 GMT. This method captures the Asian trading day. Telephone trading is available 24 hours. All methods are only available Monday through Friday.
The London Metal Exchange calendar features holidays in 2020, 2021 and beyond. We have listed them here so that you do not have to wonder “is the London Metal Exchange closed today?”.
- New Year’s Day – January 1st (3rd in 2021)
- Early May Bank Holiday – May 3rd
- Spring Bank Holiday – May 31st
- Summer Bank Holiday – August 30th
- Christmas Day – December 25th (27th in 2021)
- Boxing Day – December 26th (28th in 2021)
London Metal Exchange Vs CME
One of the London Metal Exchanges main competitors is the Chicago Mercantile Exchange. Though it is difficult to compare the two, the CME offers a much broader range of assets, including agricultural and energy products, while the London Metal Exchange focuses solely on metals.
One area that LME leads in is that of environmental, social and governance (ESG) concerns. The LME is committed to a sustainable future and has pledged to include green aluminium in the future.
Mathew Chamberlain is the CEO of the London Metal Exchange. He took over from former chief Garry Jones in 2017. Some other employees of note include Chris Jones (the Chief Risk Officer for the London Metal Exchange’s clearinghouse, LME Clear), Katy Hyams (Head of Regulatory Policy) and Kirstina Combe (Head of Regulation and Compliance). Diarmuid O’Hegarty was a long-serving member on the board of directors and operated in many roles during his time.
The London Metal Exchange has two branches:
- London Metal Exchange London Office Address: 10 Finsbury Square, London, EC2A 1AJ
- London Metal Exchange Singapore Branch Address: 9 Battery Road, #07-02, MYP Centre, Raffles Place, Singapore, 049910
The London Metal Exchange can be contacted if there are any client issues, including when arbitration is required. Email addresses for various departments (with the email format @lme.com) can be found on the LME website. The phone numbers to call for each branch are:
- London Metal Exchange UK Contact Number: +44 20 7113 8888
- London Metal Exchange Singapore Phone Number: +65 6535 5035
How To Start Trading On LME
If you want to trade contracts directly on the London Metal Exchange, you must do so through an LME member. Here, we will describe how you can participate indirectly on the London Metal Exchange. Exchange-Traded Commodities (ETCs), similar to ETFs, are traded on the London Stock Exchange. To trade these, follow this guide:
- Choose A Broker: There are many brokers to choose from when looking to trade London Metal Exchange ETCs on the London Stock Exchange. When trying to find the best brokers for London Metal Exchange trading, we recommend comparing fees and premiums as well as customer support levels before deciding which to use. Also, if you want to conduct mobile trading, check whether they support an app.
- Deposit Funds: Once you have selected a broker, deposit funds to the account.
- Purchase ETC: You are now ready to purchase an exchange-traded commodity (ETC) on the London Stock Exchange (LSE).
Tips & Tricks
These helpful tips and tricks will help you better understand the London Metal Exchange and how to profit from it.
The internet is blessed with so many resources to teach you all you need to know about the London Metal Exchange. There are many videos on YouTube, as well as PDFs and online books, that will expand your trading knowledge, make sure you utilise them.
History can play an important role in predicting prices on the London Metal Exchange. Look at anything from historical copper prices to recent copper and steel price graphs from 2020, to learn about past trends which may repeat themselves.
Final Word On The London Metal Exchange
The London Metal Exchange (LME) is a commodities exchange steeped in a deep and rich history. From humble roots in coffee houses, the exchange has built many traditions including the world-famous ring. The LME is the largest and most important exchange when it comes to non-ferrous metals like copper, lead and zinc. If you want to get into the metal trading business, or profit indirectly from it, follow our handy guide.
Can I Purchase LME A Shares?
No, you cannot. HKEY Exchanges and Clearing Limited are the sole shareholders of the London Metal Exchange. However, it is possible to purchase B shares.
Is There Still Open Outcry Trading At LME?
Yes, open outcry trading is still conducted at the London Metal Exchange. The trading floor was reponed after outrage from the community.
Can I Buy Iron Futures On The LME?
No, you cannot buy iron futures contracts on the London Metal Exchange. However, steel, the iron alloy, is available.
What Is The LME Official Settlement Price?
The LME Official Settlement Price is the last cash offer price at which all LME futures are settled. It is published between 12:30 and 13:25 GMT.
What Is LME’s LMEGA?
LMEGA is the London Metal Exchange Golf Association. Members can meet up and play golf with other individuals in the metal industry.