Monday, September 19, 2011

LME

LME - London Metal Exchange




About the London Metal Exchange :

The London Metal Exchange (LME) is the world's leading metal market specializing in non-ferrous base metals trading. The LME operates successfully with a turnover in excess of US$4,500 billion and market capitalization of around $3,000 billion annually. It plays an important part in maintaining the stability of commodity prices throughout the world.

From January 2000, The London Metal Exchange Limited became a wholly owned subsidiary of a new company - LME Holdings Limited. The LME Limited has up to 13 directors and six of them are the shareholders of LME Holdings Ltd.

Today, the exchange trades in eight metals, two plastics, and one index that include six primary base metals. The eight metals contracts are copper grade A, primary aluminum, standard lead, primary nickel, tin, special high grade zinc, aluminum alloy, and North American Special Aluminum Alloy (NASAAC). The plastic contracts include polypropylene (PP) and linear low density polyethylene (LL). Unlike other markets, trading in the London Metal Exchange is carried out in lots rather than tones.

The London Metal Exchange carries three prime roles - hedging, delivery, and pricing. The participants in the Exchange are protected against risks arising from movements in base metals and plastic prices, provided with storage and delivery facilities, and presented with the references prices in the metal and plastic industry for benchmarking.

The LME has three trading platforms - the open outcry market (ring trading), Inter-office telephone market, and the LME Select market. During ring trading a small number of members trade each LME contract in specific 5-minute periods 'rings.' At present, there are 11 'ring dealers' and they make a significant proportion of the LME contracts. The Inter-office telephone market is a 24 hour global market place transacted between member companies over the phone. Whereas, the LME Select screen trading system is the LME's official electronic trading platform, where accredited traders execute trades electronically. There are about 100 traders involved in the LME trading.

All LME prices are quoted in US Dollars, but the LME permits contracts in sterling, Japanese yen, and Euros. Additionally, the LME provides official exchange rates from US Dollars for each of the other accepted currencies.

LME - History of the London Metal Exchange :


The London Metal Exchange Company was formed in 1877 but its origins trace back to the 16th century when the traders in metal and other commodities met on a regular basis in the newly opened Royal Exchange in London.

When Britain became the major exporter of metals in the 19th century, the Royal Exchange filled up with so many overseas commodity merchants that it became difficult to do business. The necessity to find premises for trading arose. During the Industrial Revolution when Britain started importing metals from abroad, trade at irregular intervals put merchants and customers at risk. Therefore, the London Metal Exchange was formed to create a single market, recognize times of trading, and standardize metal contracts.

The Exchange was closed over the World War II and reopened only in 1952.

The market of metals and commodities has constantly changed and the LME has adopted successfully to the changes. At first, only copper was traded. Lead and zinc gained official trading status in 1920. The copper contract was upgraded in 1981 and then in 1986. While the lead contract has remained unchanged, zinc has undergone a number of upgradings. Aluminium was introduced in 1978 and nickel commenced trading a year later. In 1999, a silver contract was launched. Whereas, base metals are traded in the LME since 2000.

In April 2000, an index contract - LMEX - was introduced. It is based on the six primary metals traded on the Exchange: aluminum, copper, lead, nickel, tin, and zinc. Extensive statistical analysis of the performance of LMEX has been executed using historical prices dating back to the 1970s.



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