The LME is the London Metal Exchange, a stock exchange that has the particularity of trading futures and options contracts with precious metals and industrial metals. In this article we explain in depth what the LME is and how it works.
What is the LME
The London Metal Exchange is the global hub for industrial metals trading. The prices used on the platforms of the London Metal Exchange serve as a global benchmark, guaranteeing continuity of production with all quality standards.
Its foundation dates back to 1877, although it actually dates back to 1571, when merchants began to meet periodically to buy and sell metals. This is why its foundation serves to regularise the buying and selling of metals, which in its origins was done by exchanging the metals themselves (without the intervention of financial derivatives). Since there was no fixed price for each one, it was necessary to make transactions more professional in order to eliminate uncertainty in the agreements between merchants and traders.
Moreover, as many of the metal pieces came from overseas, it was very difficult to know the exact date on which they would arrive. This is how futures contracts came about, so that traders did not have to take the risk that the value of the merchandise would not be what they expected. Today, these contracts are still in place, with eight metals, two plastics and an index covering the six primary metals currently traded. The eight LME contracts are:
- Grade A copper
- Primary aluminium
- Standard lead
- Primary nickel
- Special high grade zinc
- Aluminium alloy
- American Special Aluminium Alloy (NASAAC)
Plastics contracts are polypropylene (PP plastic) and linear low density polyethylene (LLDPE).
Types of metals on the LME
The metal prices that are usually followed are those of the precious metals, mostly gold and to a lesser extent silver, although the LME does track the price of many other metals. The market classifies all metals into the following:
- Non-ferrous metals: such as aluminium, copper, zinc, nickel, tin or lead.
- Ferrous metals: iron and steel.
- Precious metals: such as gold and silver.
- Minor metals: cobalt and molybdenum.
Functions of the London Metal Exchange
The functions of the LME include the following:
- As its main objective, the London Metal Exchange should be able to provide a global forum for producers and sellers to manage the risk of future metal price movements, which change frequently.
- It should deposit traded materials in warehouses around the world.
- To provide security and reliability to producers and sellers of metals and other areas such as machinery manufacturing or construction.
- To establish an objective representation of the amounts according to the supply and demand in the sector at a global level.
How the Metal Exchange works
To trade on the Metal Exchange and in the buying and selling processes, membership is required. Once this requirement is met, trading can be conducted in three different ways: in the ring, in person, online at LME Select or via telephone. Regardless of how the meeting is conducted, it must result in a contract specifying the details of the agreement that has been reached. This increases the security of the transaction.
American Metal Exchange
The American Metal Exchange is also an online provider of metal industry news and metal price information for the US markets: steel, ferrous and non-ferrous metals.
The London Metal Exchange is a key venue for the metals market. In addition, ScrapAd, as a platform for buying and selling scrap and other materials, we make the transaction of these materials safe and much easier.