The London Metal Exchange (LME) launched seven new cash-settled futures contracts yesterday, including hot-rolled coil (HRC) steel, alumina and cobalt, aiming to attract more business after profits fell last year.
The world’s oldest and largest market for industrial metals wants a stronger portfolio of products as competition intensifies with rival exchanges, such as CME Group Inc of the United States.
Trading was thin in the new contracts yesterday, but industry participants said it often took time for activity to gear up.
By early afternoon in London, the only trades among the new contracts had been 40 lots of aluminium premiums.
“It’s normal, most steel contract launches go slow,” said Jeff Kabel, chairman emeritus at the International Steel Trade Association (ISTA). “There could be some trades today, but I’d give it till mid-week or so.”
The steel and alumina contracts have the best chance of succeeding, according to analysts, traders and other industry sources.
The 142-year-old LME has lost market share in recent years to the CME and China’s Shanghai Futures Exchange (ShFE). The LME has been slower than its rivals to launch new products, but it has recently developed new technology that makes launching new contracts easier, faster and less expensive.
The exchange hopes to boost volumes to make up for weaker revenues last year resulting from fee cuts as it rowed back after heavy criticism about a previous jump in fees.
Volumes at the LME rose 5% last year, but core profit fell by 10% in the commodities segment of its parent, Hong Kong Exchanges and Clearing.
The LME has high hopes for its new HRC contracts, believing it can tap into a massive global steel sector that has seen surging volumes develop in Chinese ferrous contracts.
HRC is steel that is heat processed into metal sheets used for car bodies and household appliances. The LME is launching regional HRC contracts initially covering North America and China, and later adding northern Europe.
They will compete with the CME’s Nymex exchange for US metal and on ShFE for Chinese material.
The LME already has steel rebar and scrap contracts.
The LME also plans to launch a contract for alumina, the raw material to make aluminium, which has seen sharp price swings recently.