London Metal Exchange

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The London Metal Exchange (LME) describes itself as "the world’s premier non-ferrous metals market", having traded across $11.6 trillion dollars in 2010 - $46 billion per day.[1] It has three sections of operation: hedging futures, discovering prices and delivering metals.

In July 2011 LME was accused of allowing its traders to lock significant quantities of aluminium in storage, driving up the metal's price globally.[2]

Aluminium Hedging Controversy

In 2011 a series of LME regulated metal storage facilities in Detroit, mostly owned by Goldman Sachs, had accumulated 1/4 of the global aluminium inventory. The storage of metals is in itself a profitable industry, with Glencore, JP Morgan and Trafigura all having followed Goldman Sachs in 2010 in investing in warehouses. Glencore reported $31 million profit from its Italian unit alone in 2010.[3]

Perhaps the main reason for investment banks to control metals warehouses is to be able to influence the global supply of their inventories. In 2011 approximately 70 per cent of aluminium in LME's metal's warehouses were held in bank finance deals where investment banks would buy metals from producers, store them in warehouses and agree to sell at a future date. Aluminium prices were inevitably driven up across the markets and onto the consumers due to the lack of readily available stock. Robin Bhar, minerals analyst at Credit Agricole has commented on the bank finance deals:

"I think it makes a mockery of the market. It's a shame… This is an anti-competitive situation. It puts (some) companies at an advantage, and clearly the rest of the market at a disadvantage. It's a real, genuine concern. And I think the regulators have to look at it." [4]

The LME will enact measures in April 2012 to increase supply from its warehouses but critics have dismissed these changes as insubstantial. Although it will double the minimum delivery rate to 3000 tonnes per day, LME's rules legislate per city rather than per warehouse, meaning that its many warehouses in a city like Detroit will be hit with only a relatively small increase in the amount they have to deliver.[5]

Owned privately by the same investment banks who broker within the LME's famous 'Ring', one might question whether radically changing LME rules would benefit its shareholders.

History

The London Metal Exchange (LME) was established in 1877 above a hatters, out of the rapidly-expanding metals market of the 19th century.[6]

Board Members

As of 2000, LME ltd became wholly owned by holding company LME Holdings ltd, whose shareholders are the broker members of the exchange. Board membership below is for both companies, unless otherwise stated.[7]

The Ring

Dating back to when a merchant with goods to trade would draw a circle in the sawdust of a tavern and call all interested bidders to stand around it,[13] the LME ring is now made of leather-seats and it only admits select Ring Dealing Members. These are:[14]

Contact

  • Address: 56 Leadenhall Street, London, EC3A 2DX, UK
  • Tel: +44 (0)20 7264 5555  
  • Fax: +44 (0)20 7680 0505

Resources

Notes

  1. ↑ 'LME Homepage: About the LME' accessed 10 Aug 2011
  2. ↑ Pratima Desal & Clare Baldwin 'Goldman's new money machine: warehouses', 29 July 2011, accessed 10 August 2011
  3. ↑ Pratima Desal & Clare Baldwin 'Goldman's new money machine: warehouses', 29 July 2011, accessed 10 August 2011
  4. ↑ Pratima Desal & Clare Baldwin 'Goldman's new money machine: warehouses', 29 July 2011, accessed 10 August 2011
  5. ↑ Pratima Desal & Clare Baldwin 'Goldman's new money machine: warehouses', 29 July 2011, accessed 10 August 2011
  6. ↑ 'LME Homepage: History of the LME', accessed 10 August 2011
  7. ↑ 'Corporate Structure', accessed 10 Aug 2011
  8. ↑ Christopher Hope 'Brian Bender, civil servant who accepted most freebies, to retire with £1.85m pension', 13 February 2009, accessed 10 August 2011
  9. ↑ Advisory Committee on Business Appointments (ACoBA) Annual Report 2010-2011
  10. ↑ 'LCH.Clearnet Group BOD', accessed 10 August 2011
  11. ↑ 'NEW INDEPENDENT DIRECTOR APPOINTED TO THE BOARD OF LME HOLDINGS LIMITED', London Metals Exchange, 20 September 2011, accessed 24 September
  12. ↑ 'Witan Board Of Directors' accessed 10 August 2011
  13. ↑ 'LME homepage: History of the LME', accessed 10 August 2011
  14. ↑ 'LME homepage: Ring dealing', accessed 10 August 2011
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