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Non-ferrous metal exchange
Exchanges where non-ferrous metals are traded include the world's major commodity exchanges. These are markets of so-called "pure competition", where qualitatively homogeneous goods (e.g. copper, aluminum, nickel, lead, zinc, tin) are sold and bought according to certain rules. Precious metals such as gold, platinum and silver are also traded on commodity exchanges. The largest such exchanges are universal, but there are also specialized ones (for example, the London Metal Exchange – LME).
Despite the fact that originally such exchanges were created for buying, selling and actual deliveries of non-ferrous metal, today in the USA the share of such transactions (ending in deliveries) usually does not exceed 1.5%. However, non-ferrous metal exchanges fulfill their function: they are used to conclude futures contracts (for future periods).
The London Non-Ferrous Metal Exchange is one of the oldest, and started practically from a small coffee shop next to the Royal Exchange, where traders would make trades by speaking, discussing supply opportunities in a circle. Deals for future periods started being concluded, which was an important milestone. This was also because Great Britain was the main producer of tin and copper from the mid-19th century.
In 2008, the London Non-ferrous Metal Exchange closed 113 mln contracts and the trading volume amounted to 10.24 tln USD.
As a rule, this is where the world value of non-ferrous metals is set.
In 1877, the exchange began to officially operate. In 1978, it started trading aluminum, and the following year – nickel, and eventually became the world center for trading 6 major non-ferrous metals. Since 2002, contracts for trading in aluminous alloys have been introduced, and since 2005 – in plastics. And by early 2013, the exchange was acquired by the operator of the Hong Kong Stock Exchange.
Among universal commodity exchanges, one of the largest in terms of transaction volume (which includes precious metals) is the Chicago Board of Trade. The London Metal Exchange (official website – lme.pro) is a recognized center of specialized trade in non-ferrous metals. Since December 2012, it is acquired and managed by Hong Kong Exchanges and Clearing. It performs the tasks of setting the current price for 6 main non-ferrous metals and other materials (e.g. plastics), as well as hedging (protection against changes in value), guarantees of fulfillment of obligations (delivery of real metal from the warehouses of the exchange). It also allows participants to invest in lots of goods, perform arbitrage transactions, financing (with current sales of goods and its delivery in the future), as well as speculative activities – playing on price differences.
Commodity exchanges emerged much earlier than stock exchanges – one of the first to operate was in Bruges in 1409.
Territorially belonging to the PRC, the Shanghai Futures Exchange (trading in non-ferrous metals) is operated by a non-profit organization – the state Securities Commission. Official website of the country's largest trading platform and one of the leading exchanges in Asia and Oceania. Buy-sell transactions are processed electronically. The exchange is open from 9.00 a.m. to 11.30 a.m. and then from 1.30 p.m. to 3.00 p.m. (local time). More than 200 companies are members of the Shanghai Futures Exchange, which trades in non-ferrous metals. Membership is available in two formats: as a broker or as a proprietary member (trading is only allowed using your own account).
The Shanghai Gold Exchange, China's largest precious metals exchange (opened in late 2002), also operates as a commodity exchange.
When studying the situation on the world market of non-ferrous metals, we rely on changes in the cost of metal – price quotations. Prices are formed at the beginning and the end of the exchange session, and then the minimum and maximum price values are announced (published) according to the results. These are the price quotations for non-ferrous metals. Important: at each exchange such prices for non-ferrous metals (the main 6 at the London Stock Exchange are aluminum, copper, lead, tin, zinc, nickel) are determined by the quotation commission.
The word "quotation" comes from the French language (coter – "to mark, number").
Nowadays, daily metal price quotations are determined not only for the basic 6 "products" of the LME, but also for precious metals – gold, silver, platinum, palladium. It takes place on London, Shanghai, New York exchanges.
There are:
- direct price quotation (the price of a unit of goods);
- and indirect price quotation (the amount of goods 1 monetary unit can buy).
It's not easy to figure out what to understand by a word combination like the New York Mercantile Exchange. One takes into account a particular type of exchange, each of which trades a particular exchange commodity. New York City is home to the Stock Exchange and the Commodity Exchange.
NYMEX, or New York Mercantile Exchange, was established back in 1882, and today it is the world's No. 1 oil futures trading exchange. COMEX (Commodity Exchange), which had been dealing with non-ferrous metals since 1933, joined it in 1994. NYMEX then became part of the Chicago Mercantile Exchange's single market group, the CME group, in 2008. Trade directions:
for NYMEX: precious metals, oil and gas products, electricity, ethanol.
for COMEX: gold, silver, aluminum, copper.
Fact: In 1872, the "ancestor" of the New York Mercantile Exchange traded cheese, eggs and butter, and was called the Butter, Cheese and Egg Exchange.
These institutions were created to normalize world trade in metals. The functions of a metal exchange as a trading platform are as follows:
Daily metal price fixing. In trading, the largest producers, consumers and intermediaries reveal the state of world prices for metal.
Guarantee of delivery. Real existing goods (physical metal) are grouped at the warehouses of the exchange. Contract (options, futures) obligations are tracked.
Hedging. The function that has been in operation for 130 years. Risk hedging on the London Metal Exchange (LME) has been carried out since 1877.
Ensuring that free capital is invested in the commodity.
Arbitration in case of price dispersion in the markets of several countries.
Financing (lending operations – sale of a warrant followed by purchase of goods against future delivery). Warrant – a warehouse warrant for the right to dispose of goods.
There are only two types of transactions – those on real commodity/futures. The first ones are completed by delivery and receipt (acceptance) of the goods – the so-called real metal. The duration of one trading session is just under 6 hours. There are 3 types of trading on the London Metal Exchange:
- a free exchange one (the one with the "open outcry" in the "ring" when a group of people sit across from each other);
- an interoffice telephone market;
- a computer system called LMEselect.
Types of trading on the London Metal Exchange are tailored to the specific needs of participants. The terms of concluding futures contracts are for a period of up to 3 months, long-term contracts – up to 123 months. Settlements after trading are made even in cash. All contracts can be easily formalized on paper.
The exchange is responsible for branding – only 650 brands from 60 countries are approved by LME with the "Good Delivery" mark. Metal at the warehouses of the London Metal Exchange is required to have such a brand or the producer undergoes testing.
Price quotation data on currencies, metals and securities from stock and commodity exchanges is the main barometer of world prices:
- platforms for free shaping of supply and demand respond to the state of markets and the buyers' requests;
- and changes in the value of commodities, stocks, securities and currencies determine the way the world market reacts and changes in their value.
The main trading sessions also become significant. On the example of LME it looks like this: at each session no more than 9 metals are traded, each contract is formed in 5 minutes on average. It is the second block of trading that particularly affects the world prices. Only after them the OTC trading begins with a duration of 1 hour 25 minutes and 45 minutes for futures and options. Buyers and sellers rely on the main session for pricing.
Any exchange, in terms of its functionality, is an essential part of a market economy. It provides a platform for transactions (buying and selling property), but its functions are not limited to that. What opportunities does the exchange offer? These are:
Speculation (gambling on price differences). Speculative transactions are those that do not involve the receipt or provision of real goods.
Investments. It is possible to allocate free capital to companies, thereby saving finances from depreciation.
Financial returns. Often the return on investments in commodities, shares, and other instruments exceeds that received on the traditional capital market.
Arbitration transactions. It is possible to buy and sell goods on several exchanges at the same time, making a profit.