LME aims to be biggest fish in the metals pond

LONDON: While markets recover from the shock of the collapse of the high risk home loan market in the US, prices of the industrial building blocks traded at the London Metal Exchange have rebounded powerfully. But the sub-prime fiasco also showed that while the LME is a linchpin of the metals trade, it is a smaller cog in the global money-go-round, its chief executive told Reuters in an interview. "It does put us into perspective," Martin Abbott said. "While we are colossally important to the non-ferrous metals market, in terms of the global financial system, we are a relatively small segment. The LME is not going to be the cornerstone of a global financial crisis." Still, if lenders make it more difficult to borrow from now on, it may affect the amount of money available for trading on the world's benchmark metals bourse. "We are a credit-driven business. Companies will have to compete for available credit," Abbott says. "My sense is that LME business is considered good business. I've not heard of constraints coming into the marketplace at the moment." Tighter lending conditions may make the LME more attractive, if hedging—protecting income by fixing future prices—is encouraged. "It might mean, if the conditions under which credit is extended are stricter, then there is more focus on risk management," he said. Volumes of transacted business on the LME spiked in August in the immediate aftermath of the sub-prime meltdown as investors sold profitable metals, and total volume is on course to beat last year's record. In January, Abbott pledged to double volumes within five years. As the metals industry this week celebrates the LME Dinner at the end of his first year at the helm, the exchange is working on a batch of new initiatives to help it meet this target. The most highly-anticipated of these are two steel futures contracts, due for full launch in April next year. "Our realistic hopes are that we are able to provide a liquid, two-way market from day one," Abbott says. "What I wouldn't like to see is all buyers or all sellers and no business." Although they are lower-profile, planned post-transaction services such as clearing for swaps will also contribute to the LME's business, Abbott says. "These are actions which can be just as beneficial to turnover growth...as brand new contract launches." The exchange has commissioned a feasibility study on a magnesium contract, plans to look at high-tech metals cobalt and molybdenum early next year, and uranium has also appeared in Abbott's in-tray. "We have toyed internally with the idea of uranium, but we are not yet at the point of deciding whether it deserves to be elevated to a feasibility study or not," he says. Doubling volume by expanding the amount of contracts and services the LME offers is part of the exchange's aim to cement the dominance it currently enjoys in the non-ferrous metals market. This dominance is the LME's own to destroy, Abbott says. – Reuters