at Andy Home
Crisis? What crisis? It’s hard to believe that just over three years ago the London Metal Exchange (LME) was teetering on the brink of a death spiral after its nickel contract exploded.
Yet as the global metals industry gathers in London for the annual LME Week celebrations starting on Monday, the 148-year-old stock exchange, which is owned by Hong Kong Exchanges and Clearing 388appears in good health.
Trading volumes are increasing and nickel has returned to pre-crisis activity levels. New LME warehouses have opened in the Saudi port of Jeddah and in Hong Kong.
The stock exchange’s open-outcry trading ring also continues to defy expectations of inevitable demise, with US broker Clear Street (link) joining the hallowed circle of red leather.
The tumultuous events of March 2022 still cast a long shadow in the form of the ongoing stock market reform program and tougher enforcement policies.
But the LME is underpinned by turbulence in physical metals supply chains, not least this year’s special guest in London: Doctor Copper.
MUST DO BETTER
Earlier this year, the Financial Conduct Authority (FCA) drew a line under the nickel crisis with a hefty fine on the LME, reduced for cooperating with the UK regulator, and a detailed, at times harsh, analysis of what went wrong.
If it had been a school report, it would have ended with the words “he must do better.”
The stock exchange, to be sure, has tried, pursuing a market restructuring program in the face of predictable hostility from many of its members.
After much insistence, the LME will proceed with the introduction of block trade thresholds to drive more liquidity to its electronic platform. But it has had to allow greater leeway for interoffice bargaining at the front of the curve to appease its industrial base.
An attempt to extend block-trade rules to the over-the-counter (OTC) segment of the market was abandoned after strong resistance from futures industry members and associations.
Probably less controversial is the exchange’s proposal to move options contracts from inter-office to electronic trading.
The London metals options market is underdeveloped compared to other exchanges.
The Shanghai Futures Exchange (ShFE) only introduced options trading in 2018, but now has liquid contracts across the full spectrum of its metals range, including the new aluminum alloys contract. The US stock exchange CME 
CMEmeanwhile, has expanded its copper options offering with weekly contracts.
The LME’s timeline for the move to go electronic is getting longer, but the ambition gets a vote of confidence from Dutch options trader Optiver, which has just become a non-clearing member.
MORE MUSCLE
The LME, no doubt under the watchful eye of the FCA, has tightened its handling of oversized positions by extending its lending rules beyond the spot settlement date, to the nearest monthly prompt.
The rules require an entity with a long dominant position to lend at a maximum rate, diluting the potential for market cornering.
When it announced the change in June, the LME revealed that it had already “on occasion” directed “market participants to take a series of actions to reduce large stock market positions relative to prevailing stock levels.”
The new lending rules were presented as a response to low stock market inventories, particularly in aluminum and copper, markets where physical supply chains have been distorted by sanctions on the Russian metal and US tariffs respectively.
However, they also fit into the context of a progressive squeeze that has gripped the aluminum contract since May. Even the FCA wants to know why Swiss trader Mercuria is holding back so much metal.
Regardless of this particular standoff, it is clear that the stock exchange is taking a more active and robust role in trying to manage its unruly markets.
THANK YOU MR PRESIDENT
The increase in volumes is good news for LME executives and partners. Average daily volumes increased 18% last year and grew another 3% in the first nine months of this year.
Of course the LME will present this as an endorsement of its reform campaign, but the stock exchange has also reaped the benefits of the turmoil in physical metals supply chains.
US President Donald Trump’s then-delayed threat to impose an import tariff on refined copper triggered a tectonic shift in global supplies towards the United States.
This proved to be good news for the LME, with its international and industrial user base, and less good news for the more fund-oriented CME contract. LME copper futures and options volumes rose 2.4% year-on-year through September, while CME activity contracted 39% over the same period.
Meanwhile, oversupply in the lead and nickel markets spilled into LME warehouses, sending stock market inventories to multi-year highs and boosting financing activity on LME contracts.
The long-dormant cobalt contract has also come back to life, recording record activity as 1,755 tonnes of the metal entered the LME warehouse system.
But the special guest of this year’s LME Week will be Doctor Copper, who has had an up-and-down time so far in 2025, but is back in full bull mode.
The LME 3 month copper price 
HG1! this week it hit the level of $11,000 per metric ton, coming within striking distance of its all-time high of $11,104.50, set in May 2024.
When Doctor Copper is in this mood, it probably means there’s going to be a real LME week party. Let’s just hope the hangover isn’t too bad.
The opinions expressed here are those of the author, a Reuters columnist.
