The copper price is set every working day at the London Metal Exchange (LME) and at other exchanges such as the New York Commodity Exchange (COMEX) or the Shanghai exchange. The LME copper price is not a single price, but a variety of price references e.g. for cash, 3 months or December settlement. The LME price is set for a ton of copper cathode - grade A according to standards EN 1978 and ASTM B115. The price is duty unpaid, without VAT or taxes.
The LME operates through three trading platforms: an open-outcry trading floor ("the ring"), an electronic trading platform ("LMEselect") and a vendor network acting on indicative quotes by members over the phone. In the trading pit, LME members meet on business days to define prices that are truly reflective of global supply and demand. The bulk of transaction though takes place through the electronic trading platform. The LME price is used throughout the copper supply chain, upstream to apply a discount to traded intermediary copper products such as concentrate, blister and anodes. It is also used downstream to add production costs to fabricated and wire & cable copper products.
The LME can be used for hedging. LME futures are available daily out to 3 months, weekly out to 6 months and monthly out to 123 months. Cash settled contracts are defined out to 15 months. The contract size for copper is 25 tons. The 3-month prompt for futures is popular and good liquidity for this type of contract can be expected. With so many contract types, the majority of them offer limited liquidity.
The LME is mainly a financial market, i.e. the majority of transactions are settled before their prompt date. Although traders have the possibility to deliver copper or ask delivery of copper from LME warehouses, this is rarely done because the location of a warehouse or a copper shape available may not be convenient. The availability of a copper stock in 610 international storage facilities ensures however price convergence between the physical and financial market. The copper stock levels in LME warehouses are also closely monitored by traders as a barometer of metal markets.
The LME aims for market transparency - microphones and cameras record the trading in the pit. The LME is regulated by the Financial Conduct Authority and by the Bank of England.
Since the LME sets an international reference price that is used by all actors upstream and downstream, copper producers are "price takers" and need a level-playing field to ensure comparability of compliance costs with climate, energy and environmental regulation.
The LME is increasingly committed to responsible sourcing, which has opened up new collaboration paths for Copper Alliance and The Copper Mark.
- Guide to the London Metal Exchange - freely available from the LME website (checked October 19, 2021) https://www.lme.com/-/media/Files/Education/Online-resources/Brochures/A-Guide-to-the-LME-2021.pdf
- Webinar - LME reference prices - https://www.brighttalk.com/webcast/15411/368598
Last update: October 25, 2021