London Metal Exchange CEO Matthew Chamberlain is optimistic about the future of the metals markets, despite current economic conditions, he told S&P Global Commodity Insights during a pre-LME Week video interview with S&P Global Commodity Insights Live.
"Increasingly, what we hear is that players, be they physical or financial, are really interested in exposure to metals, to base metals as those vehicles of energy transition, as the gateway to an electrified economy," he said, adding that players were positioning themselves to be ready for a "metals revolution."
He said he has seen more interest recently than at any other time during his time at the exchange.
"What we're trying to do is to make sure we're ready to serve that, and all of our initiatives, be that the Enhancing Liquidity White Paper, be that the sanctions, or all the other things that we're doing, are really about making sure that the LME is investing in being a natural home for both physical and financial players in our market," he said in the interview, which can be found on cilive.com(opens in a new tab).
The LME recently published a white paper on increasing monthly liquidity, with Chamberlain saying that initiatives, such as the block rules proposed, would allow more liquidity and more price formation on the electronic screen, LMEselect, for financial clients while not changing anything for physical players.
He said the proposed changes would allow it to "benefit both sides of our community and ensure that we're doing right by everyone."
Chamberlain said the aim was for LMEselect volumes to increase from the current 48%, although it had not set an exact target.
"Our target is that everybody who wants to be able to trade electronically should be able to do so and the physical players with those bespoke trades who want to keep doing things the way they're doing they should be able to keep doing that," he said.
He said many physical trades were probably not suitable for electronic execution and the LME did not want to push those onto the electronic screen.
Chamberlain was also not worried about the recent loss of SocGen as a Category 1 member, saying that, although it might have to look to close the Ring if Category 1 members went below six or if trading fell below 75% of the prior year's volumes, the remaining members were keen to stay.
"When we brought the ring back after COVID, we set some very clear parameters... if we went below six members we went below 75% of our reference volumes and what that would cause us to do would be to take our official prices - those physical prices that are used all over the world and migrate them from the ring to the electronic market," he said.
"We keep the whole question of the Ring under close review. But I think those parameters that we set out were really helpful," he added.
CBAM consultation
The LME also recently closed a consultation on the EU's Carbon Border Adjustment Mechanism and making carbon disclosures by aluminum producers(opens in a new tab) mandatory.
Chamberlain said it was expected that soon anyone importing aluminum into the EU would need to make CBAM declarations and eventually pay for the imported carbon, which tied in well with the LME's vision around sustainability data.
The exchange already offered its LMEpassport system, which allowed producers to voluntarily log the sustainability credentials of metal in over 50 different dimensions.
"We're really pleased to have over 700 voluntary disclosures on LMEpassport, which are then very helpful for downstream users who want to understand the footprint of the metal that they're buying," Chamberlain said.
He said CBAM would be a natural evolution of this.
"We feel it's really important that those who buy aluminum on the LME and want to be able to import it into the EU have that carbon data at their fingertips, and that's really what LMEpassport is there to do," Chamberlain said.
LME warehouse in China
Looking to Asia, Chamberlain said the LME would "love to have LME warehouses in mainland China," but that probably was not immediately achievable.
However, he expected an update on LME-approved warehouses in Hong Kong by end of 2024 and was in discussions with warehousing companies, with interest high for warehouses in Hong Kong due to its proximity to mainland China.
"Right now if you have metal in Shanghai you have to ship it over to South Korea, Taiwan or Singapore to deliver it to the LME," Chamberlain said.
Turkey steel scrap contract rise in 2024
Meanwhile on the ferrous side, the LME expects its Turkey steel scrap contract to rise 60% year on year in 2024 to more than 10 million metric tons, Chamberlain said.
"We're really pleased with the way that the scrap contracts have developed. I think they really fill an important need within the ferrous industry," he said.
The LME's Turkey and India scrap contracts are settled against prices from Platts, part of Commodity Insights, with Chamberlain saying he sees a strong partnership with Commodity Insights, particularly in terms of the Turkey steel scrap contract.
"The other regional ones are obviously slower, but the Indian one is beginning to get some traction... And we've been clear that is how we feel we can best serve the steel industry," he said.
"Obviously, nonferrous is our core market, but we want to do as much as possible in ferrous," he added.
Platts assessed Turkish imports of premium heavy melting scrap 1/2 (80:20) at $368/mt CFR and imported Indian containerized shredded scrap at $390/mt CFR Nhava Sheva on Sept. 26, down 11% and 4% respectively since the start of 2024.
