LONDON – The way in which industrial metals are priced is starting to change. Whereas once there was a single forum for trading metals such as aluminum, lead and zinc, there are now three.
The London Metal Exchange (LME) has long dominated global pricing, its benchmarks hard-wired into much of the world’s physical trade. The last year, however, has seen LME prices sway to the increased gravitational pull of China’s Shanghai Futures Exchange (ShFE).
In the United States, meanwhile, CME Group has launched five industrial metal contracts over the last 12 months as it seeks to challenge the LME’s global franchise. To some extent this is a phoney war. The LME has just experienced a second year of falling volumes but is not going to lose its metallic trading crown any time soon.
However, the fracturing of metals pricing from a unipolar to a multipolar model is starting to alter price formation at a structural level in some markets, while the sense of heightened competition is pushing the LME itself into opening up whole new markets for exchange pricing.
If volumes were the only metric, the LME’s historic role as global base metals price-setter would seem to be troubled. Total activity on the London exchange fell by 7.7 percent last year, the second consecutive year of declining volumes.
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