Transparent pricing
The LME provides a transparent forum for the trading of futures contracts for non-ferrous metals and plastics. As a result of this trading, daily prices are ‘discovered’ and published by the Exchange which the physical industry around the world use as the basis of price negotiations for the physical sale or purchase of metals or plastics.
Risk management tools
Through its trading members, the LME offers those at all stages of the industrial raw materials supply chain, including both buyers and sellers, the opportunity to ‘hedge’ their price risk, and therefore gain protection from future adverse price movements. Hedging in this way is most efficient when the physical and futures transactions are made basis the current LME price.
Delivery points of last resort
As a ‘market of last resort’, the physical non-ferrous metals and plastics industries can use the Exchange’s delivery option to sell excess stock in times of over supply and as a source of material in times of extreme shortage. The market does not replace the normal channels for the buying and selling of material and only a very small proportion of contracts actually result in delivery. The presence, or ‘threat’, of physical delivery plays a vital role in creating price convergence between the futures and the physical market.
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