A Guide to the LME

Contents
2 4 6 8 10 14 16
London Metal Exchange Setting the Global Standard Price risk management the prefect hedge The worlds price formation venue whats in a price? Warehousing, branding and price convergence the physical market of last resort The contracts and the metals todays innovation, tomorrows standard Trading unparalleled opportunity to transfer or take on risk Other services

A Guide to the LME | 1

80%
of global non-ferrous futures business is transacted on our platforms

Over

London Metal Exchange

Setting the Global Standard
The London Metal Exchange is the world centre for the trading of industrial metals more than 80% of all non-ferrous metal futures business is transacted on our platforms.
The LME brings together participants from the physical industry and the financial community to create a vital, robust and regulated market where there is always a buyer or seller, where there is always a price and where there is always the opportunity to transfer or take on risk 24 hours a day. Its what weve been doing since 1877. Investors value the LME as a vibrant futures exchange but also for its close links to industry. The possibility of physical delivery via the world-wide network of LME-approved warehouses makes it the perfect hedging venue for industry and the world gains a benchmark price they trust. The Exchange provides producers and consumers of metal not only with a physical market of last resort but also, perhaps most importantly of all, with the ability to hedge against the risk of rising and falling world metal prices.

Annual Trading

$11.6 2.7

trillion notional billion tonnes

120

million lots LME non-ferrous metals trade 30 times world production

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Price risk management

the perfect hedge
The LME is a meeting place of buyers and sellers of metal futures. It provides producers and consumers of metal around the world with the best way to manage their exposure to the risk created by metal price volatility.
Producers (those who sell the metal they mine and refine) are at risk of prices falling, and consumers (those who buy and make things from metal) are at risk of prices rising. Hedging against these price movements using the LMEs futures and options contracts enables the metal industry to focus on their core business namely, producing metal and making things out of metal. Benefits of hedging Protect against price movements Lock in margins and offer long-term fixed prices to customers Improve budget forecasts Turn inventory into cash or security for finance Protect physical inventory against price falls Hedge physical purchases in times of production difficulty

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The worlds price formation venue

whats in a price?
The LME is the de facto price formation venue for industrial metals. The prices discovered on our platforms are used as the global benchmark and basis for physical trading as well as in the valuation of portfolios, in commodity indices and metal ETFs.
Our prices are trusted because the LME is the most liquid and most traded industrial metals market in the world and its global network of warehouses ensures the price is truly reflective of supply and demand. Real-time bid and offer prices are available 24 hours a day via approved data vendors including LMElive. The LME also aggregates and publishes a set of benchmark prices that are based on highly liquid periods of the trading day.

LME benchmark prices What are they and how are they calculated? How are they used? Prompt dates When are they published? Currency

LME Official and Official Settlement Price

The LME Official Price is the last bid and offer quoted during the second open-out cry (or Ring) session and the LME Official Settlement Price is the last cash offer price The LME Official Price is used as the global benchmark for physical contracts and the LME Official Settlement Price is the price at which all LME futures are settled Cash, 3 months and 3forward December prices* (which roll annually) 12.3013.20 USD (we also publish exchange rates for EUR, GBP, JPY)

LME Unofficial Price

The LME Unofficial Price is the last bid and offer quoted during the fourth Ring The LME Unofficial Price is a good indicator of afternoon trading and is used as a reference price Cash, 3 months and 3forward December prices* (which roll annually) 15.4016.15 (ex minors) USD

LME Closing Price (or Evening Evaluation)

The LME Closing Price (also known as the Evening Evaluation) is determined by the LME Quotations Committee after the close of trading on the Ring Used by LCH.Clearnet and LME members for calculating margins All prompt dates LME Provisional Closing Price: from approximately 17.30. LME Closing Price: from approximately 18.15 USD, EUR, GBP, JPY

LME Asian Benchmark

The LME Asian Benchmark is calculated on the volume-weighted average price (VWAP) of trades transacted on our electronic trading platform, LMEselect, between 07.0007.15 or 08.0008.15 during British Summer Time (BST) The LME Asian Benchmark provides traders with a useful early-day guide to trading in one of the most significant and liquid periods of the day 3-month LME Aluminium, LME Copper and LME Zinc 07.30 (08.30 BST) USD (we also publish exchange rates for EUR, GBP, JPY)

*15 and 27 month LME Official, Settlement and Unofficial Prices cease April 2012

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Warehousing, branding and price convergence

the physical market of last resort
Our futures market complements the physical. Although a very small proportion of LME trades actually result in physical settlement, the possibility of physical delivery supported by 700 international storage facilities and 500 LME listed brands results in price convergence ensuring our prices remain in line with the physical industry.
The combination of price convergence, the global reach of the LMEs storage facilities and listed metal brands, the fact that physical deals are negotiated using LME prices and our unparalleled levels of liquidity means the world gains a price it trusts. In times of extreme shortage or over supply the LME also provides producers and consumers with a physical market of last resort. LME warehouse companies must meet strict criteria before they are approved and are typically located in high-consumption areas or logistical trading hubs for the shipment of material. All metals stored in LME-approved storage facilities on warrant must be LME-approved brands from LME-approved producers ensuring conformance to the Exchanges strict rules on commodity grade, quality and shape.

700

LME-approved storage facilities across 37 locations in 14 countries

500

LME brands from 55 countries

4.7

million tonnes delivered in and out annually

Delivery locations LME-metal producing regions

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What is a future?
A future is the obligation to buy or sell a standard quantity of a specified asset (metal) on a set date, at a fixed price agreed today

What is an option?
An option is the right, but not the obligation, to buy or sell a futures contract at a price (the strike price) agreed today

What are prompt dates?

The contracts and the metals

todays innovation, tomorrows standard
Of the industry for the industry, the LMEs products and services are designed with the metal community in mind and that is what makes the LME unique.
The LME prides itself on the unique settlement-date structure of its contracts and its focus on the physical market. Designed to reflect the nature and timing of bilaterally negotiated metal trades, market participants can use the LMEs contracts to transfer or take on risk against metal prices daily out to 3 months, weekly out to 6 months and monthly out to anything up to 123 months thats over 10 years in the future. LME traded option Through our flexible prompt-date structure, large lot sizes that reflect industrial usage, and range of contract types the LME provides participants with unparalleled opportunity to transfer and take on risk. LMEmini Small-lot, cash-settled monthly future out to 12 months American-style monthly option up to 63 months LME TAPO (Traded Average Price Option) Asian-style monthly average-price option up to 63 months LME future Physically settled contract daily out to 3 months, weekly out to 6 months and monthly up to 123 months Types of LME contract

The date by which an LME warrant must be delivered by the seller and paid for by the buyer of a futures contract. Also known as settlement date

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The metals
Cash

Daily prompt dates

Weekly prompt dates

Monthly prompts to 12, 15, 27, 63 or 123 months

3 months

6 months LMEminis

12 Tin, molybdenum, cobalt & steel billet

15 Aluminium alloy & NASAAC

27 Lead, nickel & zinc

63 Aluminium & copper

123

*Prompt dates for TAPOs and traded options are: LME Aluminium Monthly out to 63 months, LME Aluminium Alloy Monthly out to 27 months, LME Copper Monthly out to 63 months LME Lead Monthly out to 15 months, LME Nickel Monthly out to 27 months, LME NASAAC Monthly out to 27 months LME Tin Monthly out to 15 months, LME Zinc Monthly out to 27 months

Metal Non-ferrous metals LME Aluminium

Lot size (tonnes)

Shape

Quality

Contract types

Prompt dates

Main industry uses

First listed

25mt

Ingots Small Sows Large Sows T-bars Ingots Small Sows Large Sows T-bars Cathodes

P1020A high grade primary aluminium

Futures Traded options TAPOs LMEminis Futures Traded options TAPOs

Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 123 months (63 for TAPOs and traded options)

Automotive, transport, construction, aeronautical, packaging

1978 (1987 current specification)

LME Aluminium Alloy

20mt

A380.1, 226 or AD12.1 aluminium alloy

Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 27 months

Automotive, transport, construction, aeronautical, packaging

1992

LME Copper

25mt

BS EN 1978:1998 (Cu-CATH-1) grade A copper

Futures Traded options TAPOs LMEminis Futures Traded options TAPOs Futures Traded options TAPOs Futures Traded options TAPOs

Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 123 months (63 for TAPOs and traded options)

Electricals, construction

1877 (1986 current specification)

LME Lead

25mt

Ingots

BS EN 12659:1999 standard lead of 99.97% purity (minimum)

Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 63 months Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 63 months Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 27 months

Batteries

1920

LME Nickel

6mt

Cathodes (full plate or cut) Pellets Briquettes Ingots Small Sows Large Sows T-bars Ingots

B39-79 (2008) primary nickel of 99.80% purity (minimum)

Stainless steel

1979

LME NASAAC

20mt

LME NA380.1 North American special aluminium alloy

Automotive

2002

LME Tin

5mt

BS EN 610:1996 tin of 99.85% purity (minimum)

Futures Traded options TAPOs Futures Traded options TAPOs LMEminis

Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 15 months Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 63 months

Plating, soldering

1877 (1989 current specification) 1920 (1986 current specification)

LME Zinc

25mt

Ingots

BS EN 1179:2003 special high-grade zinc of 99.995% purity (minimum)

Galvanisation, brass

Minor metals LME Cobalt

1mt Cathodes (broken or cut) Rounds Briquettes Ingots Powder packed in drums 99.30% pure cobalt Futures Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 15 months Batteries, turbines, paints 2010

LME Molybdenum

6mt

Between 57 and 63% molybdenum contained in roasted molybdenum concentrate (RMC)

Futures

Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 15 months

Alloying agent in steel (stainless and construction)

2010

Ferrous LME Steel Billet

65mt Billets Nine LME grades of multiple tolerances Futures Daily: out to 3 months Weekly: 3 out to 6 months Monthly: 7 out to 15 months Construction 2008

12

All contracts quoted in US dollars and clearable in US dollars, pound sterling, Euro and Japanese yen

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Trading
unparalleled opportunity to transfer or take on risk
Metal futures and options are traded on three platforms at the London Metal Exchange.
Trading hours

The Ring
11.4017.00 Open-outcry trading floor. Liquidity is concentrated into five-minute sessions known as Rings. LME Official, Unofficial and Closing Prices are all, or in part, derived from trading activity on the Ring

LMEselect
01.0019.00 Electronic trading. LME Asian Benchmark derived by trading on LMEselect

Inter-office telephone
24 hour Members indicative quotes are distributed via the vendor network and can be executed by telephone

Participants wishing to trade on the LME must do so with one of our member firms. This can be done either directly with an LME member or through member-sponsored access to LMEs electronic trading platform. Counterparty risk is mitigated by LCH.Clearnet which clear all LME contracts guaranteeing both sides of a trade in the event of default.

As a Recognised Investment Exchange, the LME has a statutory requirement to ensure that business on our markets is conducted in a fair and orderly manner, providing proper protection to investors. The LME is regulated by the Financial Services Authority (FSA). The FSA also regulates those LME members that conduct investment business.

Description

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Other services
Education
The LME provides an extensive and worldwide programme of training courses for the metal and financial industries. These range from the popular introductory courses, which are designed to give an understanding of the core services of the Exchange and provide the opportunity to learn how to effectively manage the impact of price volatility through the use of futures and options, to more specialised courses across a number of key areas, including market analysis and hedge accounting. www.lme.com/education www.lmelive.com www.lme.com/data www.lme.com/precious

Data
Pricing data can be accessed via the LMEs network of vendors including LMElive, our own real-time price and data service. LMElive offers the opportunity to monitor price volatility with live or 30-minute delayed data and provides a comprehensive view of futures and options trading with easy access via your laptop, PC or mobile device. Subscribe for a 4 week free trial at:

Precious metals
The LME provides market data and post-trade services to the precious metals community. It produces a forward curve data set, published daily on behalf of the London Bullion Market Association, to bring new levels of transparency to the worlds largest over-the-counter (OTC) gold market. In addition the LME, in partnership with LCH.Clearnet, provides OTC post-trade matching and clearing services for gold traded on Londons bullion market.

Contacts
Branding: [email protected] Education: [email protected] General: [email protected] IT: [email protected] LMElive: [email protected] Membership: [email protected] Precious metals services: [email protected] Singapore office: [email protected] Trading: [email protected] Warehousing and storage: [email protected] Tel: +44 (0)20 7264 5555
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Nothing in this document constitutes an offer or a solicitation of an offer to buy or sell any security or other financial instrument or constitutes any investment advice or recommendation of any security or other financial instrument. To the best of the LMEs knowledge and belief, statements made are correct at the time of going to press.

All such statements and all opinions expressed herein are published for the general information of readers but are not to be taken as recommendations of any course of action. The LME accepts no liability for the accuracy of any statement or representation. LME contracts may only be offered or sold to United States foreign futures and options customers by firms registered with the Commodity Futures Trading Commission

(CFTC), or firms who are permitted to solicit and accept money from US futures and options customers for trading on the LME pursuant to CFTC rule 30.10. The London Metal Exchange Limited, 2011. No portion of this publication may be reproduced without written consent. The London Metal Exchange logo is a registered trademark of The London Metal Exchange Limited.

The London MeTaL exchange LiMiTed | 56 Leadenhall Street, London EC3A 2DX
Tel +44 (0)20 7264 5555

Fax +44 (0)20 7680 0505

Email [email protected]

Singapore Representative Office, 30 Raffles Place #19-03, Chevron House, Singapore 048622
Tel +65 (0)6535 5035
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