LME

About the LME

Established in 1877 and located in the heart of The City of London, the London Metal Exchange is the worlds premier non-ferrous metals market. It offers a range of futures and options contracts for non-ferrous, minor metals and steel. The Exchange provides a transparent forum for all trading activity and as a result helps to 'discover' what the price of material will be months and years ahead. This helps the physical industry to plan forward in a world subject to often severe and rapid price movements. Such is the liquidity at the Exchange that the prices discovered at the LME are recognised and relied upon by industry throughout the world. The LME is a highly liquid market and in 2011 achieved record volumes with 146.6 million lots, equivalent to $15.4 trillion annually and $61 billion on an average business day. Based in London the LME is a global market with an international membership and with more than 95% of its business coming from overseas. Being a principal-to-principal market, the only organisations able to trade are its member firms, of which there are various categories. LME members provide the physical industry with access to the market, to the risk management tools and to the delivery mechanism. Trading takes place across three trading platforms: through open-outcry trading in the 'Ring', through an inter-office telephone market and through LMEselect, the Exchange's electronic trading platform.

Transparent pricing The LME provides a transparent forum for the trading of futures contracts for nonferrous metals, minor metals and steel billet. 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 metal. 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 steel 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.

The London Metal Exchange (LME) publishes a set of daily reference prices that are based on the most liquid trading sessions of the day. They are used the world over by industrial and financial participants for purposes of referencing, hedging, physical settlement, contract negotiations and margining and are indicators of where the market is at any point in time. Prices Published by the LME The most reliable prices in any market are derived from those where the greatest concentration of trading takes place. The LME Official and Settlement, Unofficial and Closing Prices are all based in whole (or largely) on trading activity on the Ring. New Pricing Benchmark The extension of the trading hours of LMEselect to 01.00 has seen a significant growth in early-day liquidity. The LMEs new reference price, the Asian Benchmark, is calculated basis this early electronic trading and acts as a start-of-day peg. LME Reference Prices LME LME LME LME Official and Settlement Price Unofficial Price Closing Price Asian Benchmark

Price convergence with Industry The option of settling LME contracts through the LME's physical delivery mechanism plays a vital role in driving price convergence with the physical metals industry and ensuring that LME prices properly reflect the current supply/demand situation in the market.