LME adds to trading product roster

LME adds to trading product roster

Hot-rolled steel, regional aluminum contracts among new services.

January 17, 2019

The London Metal Exchange (LME) has provided additional detail on what it calls a “suite” of new products designed to enhance its existing contract trading offerings and to expand into adjacent markets.

The LME says the index price providers for its seven new cash-settled futures products have been scheduled to launch on March 11, 2019, and the exchange also has provided an update on its lithium contract, which is expected to launch in the fourth quarter of 2019.

“We are delighted to announce the index providers for our new cash-settled futures products, which is the next step in delivering our new products strategy and an important part of our commitment to deliver greater user choice,” says Robin Martin, head of market development for the LME Group. “The introduction of new contracts is a strategically important growth driver for the LME,” he continues. “We believe that these new cash-settled contracts will complement our existing product offering and the simpler settlement mechanism will help lower barriers to market entry. This will attract new players to the market who can benefit from using LME hedging to better manage their price risk in the physical metals market.”

The LME says its additional ferrous products have been designed “to build on [the] success” of its scrap and steel rebar contracts. These ferrous additions include two new regional hot-rolled coil (HRC) futures contracts: LME Steel HRC N. America (Platts); and LME Steel HRC FOB China (Argus).

LME says its new ferrous services “will broaden its steel offering following the successful launch of LME Steel Scrap and LME Steel Rebar in 2015, which have together traded almost 10 million metric tons to date.” Additionally, the LMEs says it is working to deliver a Northern Europe HRC contract in response to feedback from market participants.

On the aluminum side, three new products will be added:

  • LME Alumina (CRU/Fastmarkets MB basket);
  • LME Aluminium Premium Duty Paid US Midwest (Platts); and
  • LME Aluminium Premium Duty Unpaid European (Fastmarkets MB).

These contracts will complement the LME’s global primary physical aluminum contract, allowing the LME to provide price risk management tools across the aluminum value chain.

The LME Alumina contract will be priced using a basket methodology in order to better match the pricing dynamics of the physical alumina market, states the LME.

The LME is introducing the regional cash-settled aluminum premium contracts in response to market requests from users who wish to manage their aluminum price exposure on a single venue, and has been guided by the market as to the indices they currently employ, says the exchange.

The LME says it “understands that the premium pricing market continues to evolve, and has committed to a user choice model whereby the LME will support the growth of the market by listing complementary aluminum premium indices, should market participants request this.”

In the minor metals sector, the LME will launch cash-settled contracts for LME Cobalt (Fastmarkets MB) and LME Molybdenum (Platts).

The cash-settled molybdenum contract will replace the LME’s physically settled molybdenum contract. For cobalt, the LME says its physically settled cobalt price continues to be employed by some users, and thus it will support both contracts for “as long as this remains the case.”

In July 2018, the LME invited price reporting agencies to submit proposals for the pricing of its lithium contract launching in late 2019. The three shortlisted providers – Argus Media, Benchmark Mineral Intelligence and Fastmarkets – presented their proposals to the LME’s Electric Vehicle (EV) Metals Advisory Group, which met during LME Week in October 2018.

The LME’s EV Metals Advisory Group consists of more than 60 industry participants including representatives from across the industry, including miners, cathode material manufacturers, battery manufacturers, auto OEMs and consumer goods manufacturers. The working group is tasked with selecting the most appropriate price provider for the new lithium contract and is scheduled to announce the chosen partner in the coming months.