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19 August 2020

Time and a Word: Change for the Metals World



This article was written by Martin Hayes. All views and opinions expressed are strictly his own.

Evolution is a natural process, and a constant in human nature – nothing ever remains the same. But, on rare occasions, major global-encompassing events, often unforeseen, such as wars, revolutions and plagues, can accelerate change, sometimes in ways that were unimaginable.

In our lifetime, probably, the post-1945 period stands out, although there are very few people alive now who can really remember how life irrevocably changed from 1939 with the post-war consensus in the UK. There are, however, still plenty of us who benefitted from the radical changes to health, education, welfare and work that consensus ushered in – the ‘boomer’ generation.

The coronavirus pandemic of 2019/2021 (pick your timespan) in all probability will have a similar impact on the way we live and work – indeed it is already happening, with work-from-home now established, as the deserted streets and office buildings in Central London demonstrate. And for the metals business and the LME, there may be no going back to that almost cosy pre-Covid-19 world.

The Floor Gathers Dust

Back in late March, the LME was forced to close its open-outcry ring and resort to electronic price-discovery for the Official Prices and end-of-day valuations. There was nothing definite, but the feeling was this would be temporary and short-term.

There was perhaps an aspiration to re-start the Ring in the autumn, in line with the general move back towards some sort of normality – the insurance market, Lloyds of London in Lime Street, which similarly shuttered its underwriting room in late-March, is re-opening on September 1, albeit at around 45% capacity.

But works well for Lloyds of London doesn’t necessarily pan out for the LME. The Lloyds building is cavernous, and one-way systems, protective screens and thermal temperature monitoring can be implemented. And while electronic insurance business will continue, in some ways it is more efficient for large syndicated risk to be laid off with several brokers around the room, rather than through the equivalent individual Zoom meetings.

Not so at the LME Ring premises, which are custom-built around the remaining nine RDMs (Ring-Dealing Members). Space is at a premium, social distancing and one-way systems are not possible, while open-outcry shouting carries virus transmission risks galore.

The LME recently conceded this, acknowledging that it could only consider planning to re-open if current social distancing guidance were changed, a vaccine was available, or some other, as yet unknown, technological solution was available. Also, enough RDMs would need to return, and that they needed to account for 60% of 2019 ring turnovers. 

The latter looks like a tall order the longer the floor remains closed – already some of the firms are reviewing costs and staffing levels. 

To combat this, the LME has brought in a fee incentive programme – furlough payments, if you like – with rebates to the RDMs running until end-December in the first instance. This should help, but, like the wider UK economic furlough scheme, surely cannot last forever.

As well, many LME firms, not just the RDMs, are becoming comfortable with the ‘new normal’. The pricing methods are working well, with the electronic process seeing none of the end-Ring anomalies between the cash and three months closes that can happen on the floor. And early-morning strategy meetings carried out on Zoom from home have become more efficient, with staff not subject to the vagaries of transport delays in getting to office conference rooms.   

Going Green: help the world go ‘round

Where the wider industry has been concerned, the LME has for some time been aware of its environmental responsibilities, with responsible sourcing standards for brand listings. Now with a discussion paper on Sustainability it is possible to see in greater detail what this entails going forward for a circular greener economy – a Beveridge moment for the industry.

Existing contracts copper, nickel and cobalt, with lithium to come, already serve the  electric vehicle market, as do aluminium alloy and steel scrap for re-cycling. Coming down the line is a new aluminium scrap contract for the North American UBC sector, as well as two new regional scrap contracts.

Additionally, there will be LMEpassport, a digital CoA (Certificates of Analysis) register, and a spot trading platform, beginning with low carbon aluminium – an online auction. Both of these can be utilised for non-LME brands, potentially widening uptake, and are pencilled in for a 1H 2021 launch.

Now all of these may well have been in the ‘pending’ queue for the industry, but, as with the suspension of the floor, the global pandemic is accelerating events, and more notably, the willingness of the metals world – LME brokers, traders, producers and consumers to accept and adapt to that word - ‘Change’- in ways that were unlikely before the virus.

By next year or 2022, the metals business, both the LME community and the wider industry may well bear little resemblance to what was the norm in 2019.

(Footnote: in late-January I wrote “But even if the floor did close and become history, it is unlikely that the 2020s, when looked back on ten years from now, will be as eventful, as far-reaching, and as game-changing as the ‘twenty-teens”. The moral is - you never know what is around the corner.) 



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