Metal exchanges fight back with new products, markets

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    By Andy Home

    LONDON- Base metals trading volumes shrank on all three major global exchanges last year as trade war uncertainty and range-bound markets dampened speculative activity.

    ‘Doctor Copper’ has long been a favorite metallic play among punters and sliding volumes were symptomatic of a sector that was largely out of favor with the money men.

    The London Metal Exchange’s (LME) copper contract saw activity fall by 8 percent last year.

    The declines were more pronounced on both the CME and Shanghai Futures Exchanges (ShFE) contracts with volumes slumping by 25 percent and 29 percent respectively.

    Only nickel bucked the broader trend thanks to heightened price volatility and the metal’s electric vehicle credentials. Trading volumes rose by 3 percent in London and by 40 percent in Shanghai, where nickel has also assumed the role of junior partner in a proxy trade with the much larger iron ore market.

    Exchanges can’t do much about manufacturing slowdown or the resulting range-bound pricing but they are expanding their product range and opening up entirely new markets.

    It was a year to forget for many of the base metals with copper, aluminum, zinc and lead closing out 2019 little changed from year-start levels.

    Total volumes on the London market, which still dominates physical pricing, fell by 4.6 percent last year after a similar-sized rise in 2018.

    In truth the LME fared slightly better than suggested by the headline figure, which includes so-called “UNA” trades introduced to comply with European MiFIDII regulations. Strip those out and the year-on-year decline was only 1.9 percent.

    Even so, activity on all the LME’s core contracts fell last year with the exception of nickel, the top price performer among the base metals in 2019, and tin, the weakest price performer. The same two metals were the only two to register higher volumes in Shanghai.

    Tin remains a tiny futures market by comparison with nickel but even it dwarfs the LME’s aluminum alloy contract, which with volume growth of 7 percent was the unlikely star performer last year.

    That outperformance, however, should be seen in the context of falling activity in each of the previous four years.

    The LME launched two new aluminum premium contracts in March last year but with only limited success. The North American contract traded just 939 lots while the European product failed to trade at all.

    CME, which launched the first of its four aluminum premium contracts as far back as 2013, appears to have captured this particular part of the market with total volumes last year of 152,353 contracts.

    Its underlying aluminum contract looked in danger of disappearing altogether with no trades at all in 2018 but the contract sprang into life in the second half of 2019 after CME extended physical delivery to Asian locations such as Singapore and the Malaysian ports of Johor and Port Klang. They currently account for 9,291 tons of CME’s total 17,145 tons of registered aluminum stocks.

    CME zinc stocks have shrunk to just 6 tons and the contract, which didn’t trade in the second half of the year, looks perilously close to following the CME lead contract into oblivion. – Reuters

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