LME, London Metal Exchange: What it is and how it works

Together we'll find out more about the place itself and the methods used to determine the global economic value of metals.

Who decides the global economic value of metals? What are the factors that can affect it?

 

 

Non-ferrous metals like Aluminium are considered commodities, and their value is defined on a daily basis by the trading conducted on the LME in London.

 

The LME is an index that's used to define an essential component of the semi-finished product's price, which in turn is reflected in an increase or decrease in the purchase price for both the companies that market it and the industries that process it in order to create a finished product.

 

The LME value is defined by the trading conducted based on the law of supply and demand, and the value of the metal is defined upon the "closure" of the trading activities at the end of each day.

 

The LME is the European benchmark index which, together with the cost of transformation (which is different for each semi-finished product), defines the cost of the metals and their values.

 

The London Metal Exchange was established in 1876, and moves approximately fifteen trillion dollars, and 3.5 billion tons of metal, on an annual basis. Its headquarters are in London (on Leadenhall Street), and it represents an absolute reference point on a global scale. In fact, the trading operations conducted in the English capital define the cost of metals worldwide.

 

In particular, the trading can be conducted in three different ways:

• Ring Trading - Open Outcry
• Inter-Office
• “Select” Platform

 

The first, Ring Trading, consists of physical trading, and represents the actual place where the “Ring Dealers” (the only subjects authorised to verbally negotiate the prices of the metals within the ring) meet from Monday to Friday.

 

This has given rise to the name “Open Outcry”.

 

The end of the official trading sessions are followed by fifteen minutes of Kerb, or “after hours trading”, during which all the metals are simultaneously traded within the Ring.

 

If the negotiations should extend beyond the permitted times, Inter-Office trading can then be conducted by telephone, which is permitted on a 24h basis.

 

The “Select” online platform, on the other hand, is used for trading operations for which an immediate buyer is unable to be found during the Ring and Inter-Office trading sessions.

 

All trade operations defined as “Futures” require the physical delivery of the metal; for this reason, all the metals are physically stocked in the LME warehouses.