After 114 years, how does the LME Lead contract continue to support lead & battery markets?

Transcription

1 After 114 years, how does the LME Lead contract continue to support lead & battery markets? 20 th International Lead conference - ILA, Berlin Oliver Nugent, Base Metals Business Development 29 June 2017 SETTING THE GLOBAL STANDARD

2 Agenda 1. LME Lead: History & evolution with industry, 2. Understanding LME Lead participation & commitment to physical industry 3. Reconciling 99.97% LME standard with higher grade markets 2

3 114 years setting the global lead reference price Evolving with the needs of physical industry 1877 LME commences Copper, Tin 1915 LME Zinc launches (Virgin Spelter) month Month LME Lead launches (Good soft pig lead) 1993 USD Contract Standard Lead min 99.97% GB/T 99.97% % 99.90% % BS EN 99.97% % % ASTM 99.97% % 3

4 Millions Market interest comes together to form best market prices 400 LME Lead volumes (Million Tonnes) Million tonnes

5 60% 58% 56% An evolving industry, increased secondary supply Use of LME pricing and risk management has evolved Secondary as % of global supply Spent Lead-acid battery pricing: Still referring back to the core LME lead price: % of LME Lead price. 54% 52% 50% 48% 46% 44% 42% 40% Source: WBMS Average pricing prevails Guaranteed margin matching buy/selling quotation periods Hedging complexities: (fluctuating % LME price vs % pb content) Non LME fixed prices mostly in unofficial sector Engagement: Secondary Lead Working group: in addition to LME Lead & Zinc committee oliver.nugent@lme.com to join 5

6 Key principles of LME Discussion Paper Join the discussion and download the paper from Protect those features core to the LME s physical user base Standardise market structure to enhance attractiveness whenever possible without violating 1 Maximise and democratise the LME 4 Seek growth opportunities 5 Cater for forthcoming changes, particularly those arising from regulation 6

7 Quantifying LME Participation See the Market Discussion Paper on market structure LME Lead market activity by stakeholder group Volume Open Interest 9% Physical 1% 32% 24% OTC 30% 49% OTC Member (LME broker) 29% 26% Member (LME broker) Physical Fundamental Financial Member Systematic Financial Data is from LME Commitments of Traders report and LMEsmart. Data represents average of 2016 and the positions are the gross of long and short client positions only. Further methodology details available on request 7

8 The LME s commitment to the physical market 1 2 Transparent Daily pricing price discovery 3 Physical network 8

9 1 Delivery of daily prices 1. Daily 2. Weekly 3. Monthly Tomorrow 3M 6M 123M Daily prompt dates: Cash to 3 Months Weekly prompt dates: Wednesdays, 3 months to 6 months Monthly prompt dates: 3 rd Wednesday, 7 months to 123 months (copper) 9

10 2 114 years setting the global lead reference price $3,000 $2,500 $2,000 Ongoing consultation 17/128: - Increase minimum tonnage from 10 to 20 lots for lead/other metals (Kerb/Officials) LME Lead Official Cash Price (Annual Average) 10 Finsbury Square $1,500 $1,000 $500 $

11 ( 000 mt) 3 Continued investment: physical relevance Pricing represents physical markets thanks to wide range of deliverable brands Deliverable capacity of LME brands = 60% of production 60% North America 9 Central & South America 3 Lead, as of 23 t March 2017 Not including NA Germany, Australia Zinifex for which new warrants can no longer be issued 7 11 Europe Middle East & Africa 2 LME Brands by Pb Grade (%) Australia 2 Russia 1 Asia 30 Origin of LME Stocks Asia & Australasia North America Western Europe

12 3 Principles of Physical Settlement Reconciling LME 99.97% specification with higher grade markets $270 Battery grade 99.99% earns a fluctuating premium to LME 16% $40 But deliveries can earn backwardation $30 $260 15% $20 14% $10 $250 13% $0 $240 Source: MB $230 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Lead premium 99.99% purity, Delivered Domestic US % of LME 12% 11% 10% -$10 -$20 -$30 -$40 -$50 Earn $ time premium on LME delivery Cash to 3Month 12

13 The physical services team A dedicated team for all physical market enquiries: Hedging & Market Access, Brand listings, Warehousing and LME price discovery Yang Liu Oliver Nugent Liz Sullivan Rob Hall Edric Koh Physical sales & China Business Development Base Metals Business Development Brands Listing Manager Head of physical operations Physical Sales (Singapore) yang.liu@lme.com oliver.nugent@lme.com liz.sullivan@lme.com robert.hall@lme.com edric.koh@lme.com physicalservices@lme.com 13

14 Questions: 14

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