Fresh appetite for mini-metal LME contracts

City A.M. Reporter
Major London Metal Exchange brokers are taking a belated interest in the previously dormant LME mini metal contracts, metals industry sources said yesterday, adding the contracts may yet take off.

The news comes ahead of plans by the LME and the Singapore Exchange (SGX) to launch copper and zinc cash-settled minis cleared through SGX by the first quarter of next year – part of the LME’s bid to increase its footprint in Asia.

The LME originally launched small-size, cash-settled, monthly copper, aluminium and zinc futures contracts in December 2006, with one contract or lot equivalent to five tonnes as opposed to 25 tonnes for the parent contracts. They traded on the LME Select system.

According to one source, the uptick in interest in the original mini contracts is primarily due to changes in trading conditions and rules since then.

“For the initial launch of LME minis in 2006, only a very few clients plus traders could access mini prices on LME Select, [so] critical mass was not reached,” he said. “The situation today is different – the inclusion of electronic market-makers, proliferation of client access... it’s likely the LME mini will take off.”

Another reason for renewed interest is that brokers have become aware of certain advantages to trading the contracts that were not in place before, the source said.

For example, the LME recently removed the “order execution limit”, or the limit on the ratio of orders to trades for the minis, he said.

Established more than 130 years ago, the LME is the world’s premier non-ferrous metals market offering futures and options contracts.

In 2009 the LME achieved volumes of 111.9m lots, equivalent to $7.41 trillion annually.