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LME Progresses New Product Plans As Price Providers Are Announced

Date 17/01/2019

  • Additional ferrous products to build on success of scrap and rebar contracts
  • Basket methodology approach for pricing of LME Alumina contract to better match the pricing dynamics of the physical alumina market, and a user choice model for aluminium premiums
  • Cash-settled molybdenum contract replacing the LME’s existing physically settled offering, and introduction of a complementary cash-settled cobalt contract
  • Shortlisted index providers for LME Lithium contract have presented their proposals, and a final decision will be made by the LME in the coming months

The London Metal Exchange (LME) today announces the index price providers for its seven new cash-settled futures products due to launch on 11 March 2019, and provides an update on its lithium contract which is expected to launch in Q4 2019.

The suite of new products has been designed to enhance the LME’s existing offering and to expand into adjacent markets. “We are delighted to announce the index providers for our new cash-settled futures products, which is the next step in delivering our new products strategy and an important part of our commitment to deliver greater user choice. The introduction of new contracts is a strategically important growth driver for the LME,” says Robin Martin, Head of Market Development for the LME Group. “We believe that these new cash-settled contracts will complement our existing product offering and the simpler settlement mechanism will help lower barriers to market entry. This will attract new players to the market who can benefit from using LME hedging to better manage their price risk in the physical metals market.”

New index providers cash-settled futures

Ferrous suite

The LME will be introducing two new regional hot-rolled coil (HRC) futures contracts:

  • LME Steel HRC N. America (Platts)
  • LME Steel HRC FOB China (Argus)

Based on market demand for HRC contracts, the LME will broaden its steel offering following the successful launch of LME Steel Scrap and LME Steel Rebar in 2015, which have together traded almost 10 million tonnes to-date. Additionally, the LME is working to deliver a Northern Europe HRC contract in response to feedback from market participants.

Aluminium suite

Three new products will be added to the LME aluminium suite:

  • LME Alumina (CRU / Fastmarkets MB basket)
  • LME Aluminium Premium Duty Paid US Midwest (Platts)
  • LME Aluminium Premium Duty Unpaid European (Fastmarkets MB)

These contracts will complement the LME’s global primary physical aluminium contract, allowing the LME to provide price risk management tools across the aluminium value chain.

The LME Alumina contract will be priced using a basket methodology in order to better match the pricing dynamics of the physical alumina market.

The LME is introducing cash-settled regional aluminium premium contracts in response to market requests from users who wish to manage their entire aluminium price exposure on a single venue, and has been guided by the market as to the indices which they currently employ. The LME understands that the premium pricing market continues to evolve, and has committed to a user choice model whereby the LME will support the growth of the market by listing complementary aluminium premium indices, should market participants request this. The LME will continue to work closely with its members and clients to understand how best it can address this need.

Minor metals

The LME will launch two cash-settled contracts for minor metals:

  • LME Cobalt (Fastmarkets MB)
  • LME Molybdenum (Platts)

The cash-settled molybdenum contract will replace the LME’s physically settled molybdenum contract. For cobalt, the LME is aware that its physically settled cobalt price continues to be employed by some users, and will hence support both contracts for as long as this remains the case.

Shortlisted index providers for lithium

In July 2018, the LME invited a number of price reporting agencies to submit their proposals for the pricing of its lithium contract launching in Q4 2019. The three shortlisted providers – Argus Media, Benchmark Mineral Intelligence and Fastmarkets – presented their proposals to the LME’s Electric Vehicle (EV) Metals Advisory Group, which met during LME Week in October 2018. The LME’s EV Metals Advisory Group comprises more than 60 industry participants including representatives from across the entire value chain – from miners, cathode material manufacturers, and battery manufacturers, to auto OEMs and consumer goods manufacturers. The LME will be working with this group and the broader market to select the most appropriate price provider for the new lithium contract and will announce the chosen partner in the coming months.

 Background:

Contract name

Price reporting agency

Index name

LME Steel HRC N. America (Platts)

Platts

Platts TSI HRC US EXW Indiana

LME Steel HRC FOB China (Argus)

Argus Media

Argus HRC FOB Tianjin China

LME Alumina (CRU / Fastmarkets MB)

CRU / Fastmarkets

Fastmarkets MB Alumina index, fob Bunbury, Australia ($ per tonne) / CRU Alumina Price Index

LME Aluminium Premium Duty Paid US Midwest (Platts)

Platts

Platts Aluminum Transaction Premium DDP US Midwest

LME Aluminium Premium Duty Unpaid European (Fastmarkets MB)

Fastmarkets

Fastmarkets MB Aluminium P1020A in-warehouse Rotterdam duty-unpaid

LME Cobalt (Fastmarkets MB)

Fastmarkets

Fastmarkets MB Cobalt Standard grade free market $/tonne in warehouse

LME Molybdenum (Platts)

Platts

Platts Molybdenum Oxide Daily Dealer (Global) index

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Full contract specs for new products can be found here on the LME website