Understanding International Trade of LME Base Metals
When you need nickel price information, nickel news, or a nickel update, you go to the London Metal Exchange. The London Metal Exchange (better known as LME) is an international commodities exchange that deals in metals futures and options. It is physically located in London, England, but has been owned since 2021 by Hong Kong Exchanges and Clearing, a holdings company that also owns the Hong Kong Stock Exchange. It is the world’s largest exchange for options and futures contracts for base metals, which include aluminum, zinc, lead, copper, and nickel, and the exchange also facilitates trading of precious metals like gold and silver. The prices discovered on the LME are considered the standard global prices for base metals and is the source of Hallmark Mining Corporation’s nickel update on nickel price and nickel news.
LME nickel “futures” are derivative financial contracts that require parties to buy or sell nickel and nickel ore at a predetermined future date and price. The buyer must purchase or the seller must sell the underlying asset at the set price at the expiration date, regardless of the market’s current nickel price. On the other hand, “options” are a financial instrument that is based on the value of underlying securities such as LME nickel. An options contract offers the buyer the opportunity to buy or sell – depending on the whether they are holding a buy or a sell contract – the LME base metals. Unlike futures, the options holder is not required to buy or sell the asset if they choose not to exercise their option. Each contract will have a specific expiration date by which time the holder must exercise their option. The stated price on an option is known as the strike price. Options are typically bought and sold through online or retail brokers.
The London Metal Exchange and LME base metals is the only remaining physical commodities trading market in Europe. With changes being brought about by digital technologies and the shifting of work due to the COVID-19 pandemic, most other exchanges around the world have moved to purely electronic and online-based trading and operation.
The London Metal Exchange can be traced back as far as the opening of the Royal Exchange in London in 1571, where traders in metal and a range of other commodities began to meet. The LME has three methods of trading metals: open outcry, through the LME Select electronic trading platform, or by telephone systems. The nature of commodity exchanges is changing rapidly. The trend is moving in the direction of electronic trading and away from traditional open outcry trading, where traders meet face-to-face or in trading pits. "Ring trading" is the method by which certain types of investment business are conducted such as those that determine nickel price.
The origin of the "ring trading" tradition began in the early 18th century in the Jerusalem Coffee House. It was here that a merchant with metal to sell would draw a circle in the sawdust on the floor and call out "change!" All those wishing to trade would assemble around the circle and make their bids and offers. While there is no longer any sawdust in the floor, the modern Ring Trading method has buyers and sellers seated around a 6-meter diameter trading pit and they make their bids and negotiations that eventually set nickel price on the market. Trading occurs in five-minute intervals in the following order: steel, aluminum alloy, tin, premium aluminum, copper, lead, zinc, nickel, and cobalt.
The London Metal Exchange website remains the primary and most credible source of nickel news and nickel update.
With the continued and growing demand around the world for LME base metals such nickel and nickel-based products such as stainless steel and batteries, the outlook for nickel futures is bright and positive. The latest data derived from the London Metal Exchange in June of 2022 show a general uptrend in the price of global nickel. While bids are still lower than intended offer, the price gap is minimal and expected given market conditions.
Regardless, month-on-month historical data since January 2022, supports this positive outlook with the general uptrend of futures on the nickel price.
The Philippines is the second-largest LME nickel ore producer in the world, yielding nearly 14% of global nickel ore supplies in 2020, according to Market Intelligence data. After slumping since 2015, Philippine nickel ore production has been on the rise, totaling 333,962 tonnes in 2020, higher than 323,325 tonnes in 2019, according to Mines and Geosciences Bureau data. Sappor forecast that Philippine mined nickel production will rise by a compound annual growth rate of 9% between 2021 and 2025 to roughly 500,000 tonnes. Amid global production troubles and a 2020 Indonesian export ban on nickel ore in place, Philippine nickel ore miners have been enjoying favorable a nickel price. Hallmark Mining Corporation is a key participant in the country’s continued quest towards global market dominance.