LME moving into steel billet and magnesium contracts

As part of a diversion programme, the London Metal Exchange is launching two steel billet contracts in the first half of next year and is conducting a feasibility study into launching a magnesium contract. Other metals may follow.

LONDON - 

In an excellent early morning presentation at London's Global Capital Conference this week, The London Metal Exchange's Chief Executive, Martin Abbott brought us up to date on the broadening of activity planned for the LME over the next year or so.

For those who are unaware, the LME's principal new move is the complex one of launching two steel billet contracts. The pre-launch will be on February 28^th next year, followed by a full-scale launch on the 28^th April.

To start with the LME will be concentrating on the Far Eastern and European/Middle Eastern markets with points of delivery of physical metal in Turkey and Republic of Korea, with possible additions of warehousing facilities also in India and perhaps Vietnam.

According to Abbott, trade in steel billet is around 30 million tonnes a year and there is inherent price volatility in the market which makes the ability to cover production and demand forward, which the LME provides, an attractive option for supplier and consumer alike. Indeed the LME would not venture into a market where prices were generally stable.

Indeed, the Exchange is now well down the road also to initiating a magnesium contract with a feasibility study under way. Other metals are in consideration too, and given that Abbott mentioned the price volatility in particular for cobalt, molybdenum and ferro-chrome, it could suggest that these are all under the LME microscope.

In a question and answer session, the subject of the nickel contract, and the LME's handling thereof was broached. One particularly interesting fact for the writer emerged from this is that Abbott reckons that a virtual bottom to the nickel price is attained at $30,000 a tonne (around $13.60 a pound) under the current supply/demand situation. This is the level at around which it becomes uneconomic for stainless steel manufacturers to switch to a pig nickel (iron with a nickel content) feed as a substitute for nickel itself - something that had been becoming a significant factor for nickel demand when it was trading around US$24 a pound in the middle of this year before falling back sharply. The nickel price has recovered some of this fall in recent weeks as supplies remain tight.

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