This post is more metals related but seeing the size of this yet to be developped site, you would have to think it will come up as conversation.
By Simon Clark, Anna Stablum and Franz Wild Oct. 12 (Bloomberg) -- “Copper! Copper!” shouts a trader at 4:59 p.m. in the London Metal Exchange’s dealing ring, where frowning men in blue suits and pink ties jab fingers and scream at each other in the last 60 seconds of trading. The 132-year-old LME is the world’s largest metals exchange and London’s last so-called open outcry trading floor. Its 500 warehouses worldwide support $10 trillion of annual trading and make the LME a pillar of Europe’s largest financial center whose influence stretches to the heart of Africa. “For us, London is a price,” Patrick Nsumba, a trader in the Democratic Republic of Congo, said in an interview in Kinshasa. He buys copper ore from men and boys who clamber down crumbling holes to dig in the dark. “Even when we sell to China, London sets the price.” In a year of British bank bailouts, record losses for financial companies and increased regulation and taxes, the volume of metals traded rose 0.6 percent in the first nine months. Copper prices doubled on demand from China, the world’s largest user of the metal, over the same period. This week, about 4,000 metal buyers and sellers from Singapore to Santiago arrive in London to find partners in an annual ritual called LME Week. More than 95 percent of the exchange’s business is from overseas. “It’s known as the mating season,” said Nick Moore, head of commodities research at Royal Bank of Scotland Group Plc, the largest U.K. bank now controlled by the government.
No Clear Rival
While at times appearing antiquated, the LME still doesn’t have a major rival, said Christopher Gilbert, a professor at the University of Trento in Italy. The LME was founded in 1877 to feed industrial Britain’s need for metals. Three-month contracts for copper and tin are based on the time it took shipments of copper to arrive from Chile and tin from Malaysia. Competition from the Shanghai Futures Exchange is limited because foreign investors can’t trade on the Chinese exchange. “The LME has a first mover advantage,” said Gilbert, who studied the exchange. “Shanghai could possibly take trading volume away, but nowhere else has had any success.” This week, meetings take place at hotels, restaurants and offices across London from breakfast to dinner. Jose Miguel Ibanez Anrique, general manager of Haldeman Mining Company SA, is flying from Santiago to sell 20,000 tons of copper. “I live down here in Chile, which is far away from all the customers, so this week is very important for us,” Ibanez Anrique said. “The personal relationship is very important.”
The Bankers
Miners and manufacturers aren’t the only ones meeting this week. Just 1 percent of metal contracts traded in London are taken for physical delivery. The remaining 99 percent of trades are by banks, hedge funds and other investors. “You are bringing in the bankers, you are bringing in those who are financing metal,” said Mike Frawley, global head of metals at trading firm Newedge Group. “You bring in the shippers and you bring in the whole of the industry.” That makes LME Week crucial for gathering information. Last year, executives of Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, were struck by the danger of the financial crisis. “We were expanding, we were growing, and we needed to really cut back and try to reduce costs,” said Kathleen Quirk, the company’s chief financial officer.
‘Gentlemen’s Club’
London can remain the money center for metals as long as liquidity and credibility lasts, said Jack Rabinowitz, a partner at London law firm Teacher Stern Selby who advised clients on action over alleged manipulation of aluminum prices in 2005. The LME has been “notoriously susceptible” to perceptions of price manipulation, “although that has improved in recent years,” said Rabinowitz. The U.K. regulator closed an investigation of aluminum prices in 2005, saying it found no evidence of manipulation. The exchange is owned by its members and largely self- regulated, making it appear like “a gentlemen’s club,” Gilbert said. There is no limit to the size of an investor’s holding in any of the traded metals, which also include aluminum, zinc and steel. More than 90 percent of tin stockpiles tracked by the bourse are currently owned by one company. In 1998, Japanese trader Yasuo Hamanaka was jailed after losing $2.6 billion for Sumitomo Corp. after he hoarded copper.
‘New Lovers’
Three years later, the LME introduced an electronic trading system that now accounts for about half of trading. “The LME is giving transparency,” said Patrick Ammerlaan, head of metal sales at Boliden AB, Europe’s second-largest zinc producer. He’s flying from Sweden to attend the week’s main event, a black tie dinner for 2,000 on Tuesday evening where brokers host clients at the Grosvenor House Hotel on Park Lane. “I have never told my wife about the expression ‘the mating season,’” Ammerlaan said. “It’s the first indications that people give to each other, like new lovers.” Chinese demand accounts for about 35 percent of the copper market this year. Copper volumes in Shanghai increased six times in the first eight months of 2009 from a year before. “I do not see the Shanghai Futures Exchange challenging the LME in the short-run,” said Christian Velten-Jameson, a vice president of Paris-based Nexans SA, the world’s biggest maker of cables and wires. “If you are talking 25 years ahead, then perhaps.”
IRN Price at posting:
87.0¢ Sentiment: LT Buy Disclosure: Held