lme expands into minor metals

http://www.reuters.com/article/marketsNews/idINL49352620080904?rpc=44&pageNumber=2&virtualBrandChannel=0

By Julie Crust and Karen Norton

LONDON, Sept 4 (Reuters) - The London Metal Exchange (LME) said on Thursday it would launch two minor metal futures contracts, molybdenum and cobalt, in the second half of 2009.

"The announcement heralds another new area in which the Exchange can provide transparent pricing and risk management to market participants," LME Chief Executive Martin Abbott said.

"Minor metals have been discussed by the exchange for some time, and fit with our core products as they are extracted with them," he said in a statement.

"The volatility in these markets in recent times has highlighted the need for an exchange traded product, which the LME is best placed to provide."

The two minor metals are by-products of copper and nickel production, non-ferrous metals already traded on the exchange, which is home to the last open outcry trading floor in London.

In June, Rio Tinto Plc (RIO.L: Quote, Profile, Research, Stock Buzz) said it would invest $270 million to build a molybdenum facility at its Kennecott Utah copper Bingham Canyon operation to take advantage of strong demand for the metal. [ID:nWNAS7908]

A spokesman for Rio Tinto welcomed the LME's move.

"Anything that makes the market more transparent and easier to understand is going to be welcome," he said.

About 75 percent of global annual molybdenum output goes into the production of stainless steel, where demand has been driven by emerging market countries, such as China, as they invest in infrastructure.

One trader said the introduction of the new contracts could lead to more erratic trading.

"If anything, it will create a more volatile market and in the short term lead to higher prices," said a trader from a major London trading house.

"A big percentage of the market would be in the hands of the hedge funds, I can't see how consumers would benefit," he added, referring to cobalt.

Cobalt is used mainly in aircraft parts and batteries.

The LME trades non-ferrous metals, including its flagship copper contract, steel and plastics through open outcry, an inter-office telephone market and its own electronic trading platform Select.

It said the new minor metal contracts would offer all the benefits of an exchange traded product, allowing participants access to a transparently derived price and the ability to manage price risk.

Earlier this year, the 131-year-old exchange launched two steel billet futures contracts to take advantage of a market that has grown about 40 percent since 2000.