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11 April 2018

Nexus - or is the crown slipping?



This article was written by Bill Prast. All views and opinions are strictly his own.

It has been said, and with some justification, that the centre of the known universe is Sloane Square in London.  Given the well-known (and frequently satirised) affluence of its immediate neighbourhood, this crossroads of Chelsea and Belgravia is a legitimate candidate if we measure such things solely in terms of purchasing power.  If the shops on the King’s Road don’t have it for sale, then you probably don’t need it.

But this is from the perspective of a fashionista.  What about for other people?  Specifically, what about those of us in the metals trade who are more concerned with mining, metallurgy, metal markets and scrap recycling? Where, if anywhere, is the nexus of our universe?

Instinctively, I would propose London.  For historical reasons.  One need only recall the role of the Rothschilds as bankers to the South African mining industry during the days of the British Empire in the nineteenth and twentieth centuries, for example.

The diamond and gold mines of South Africa were not the only place where London financiers played a critical role; when gold was discovered in California in 1848, the Rothschilds immediately were the largest customer for this new-found source.  Similarly, Rothschild agents in Australia became involved when the gold rush began there in the early 1850s.

In 1919, the five leading London bullion refiners and dealers established the price determination practice of the twice-a-day London gold fix, convened at the offices of N M Rothschild.

So a good case can be made that the nexus of the world gold business was and may still be London, although important gold markets are in the Far East and New York today.

Moving on from gold, there is the historical role of the London Metal Exchange to support the case for London as the centre of the metals world.  Established in 1877, the origins of the London Metal Exchange began with the opening of the Royal Exchange in London during the reign of Queen Elizabeth in 1571.  By the sixteenth century, Britain had already been a major source of copper and tin for 1,500 years, dating back to the Cornish copper and tin mines which supplied the raw materials for bronze to the Roman Empire.

The London Metal Exchange remains the world’s largest market in options and futures contracts for base metals and other metals: aluminium, cobalt, copper, lead, molybdenum, nickel, steel, tin and zinc.  Since 2012, when it was sold by its membership for £1.4 billion, the ultimate owners are Chinese, the firm which also owns the Hong Kong stock exchange.

Which leads me on to question whether this massive historical pedigree of London as the centre of the metals universe is still true today, and if it is, will it be likely to hold that position?  And in any case, does any of that matter in today’s world of instant electronic communications 24 hours per day?

In a nutshell, it may still be true.  With all respect to the financial clout of the Americans and the Chinese, London can keep on equal terms with New York and Beijing (never mind Frankfurt or Tokyo) for one key reason.

The reason is the cosmopolitan nature of London itself.  Despite emails and conference calls, people relate to each other best when they meet face to face.  Serious decisions require the personal touch.  London provides the setting for that (as well as shopping opportunities), and perhaps one has to look back to when Venice was the leading commercial power for a comparable society.

Venice in the fourteenth and fifteenth century was the premier trading hub in Europe.  Venetian galleys came to Britain regularly, to the Hanseatic ports and the mouths of the Rhine.  Although it was challenged by its Italian rivals, notably Genoa, and by the Ottomans, Venice prevailed. Despite the fall of Constantinople in 1453.  It took the Portuguese to open the sea routes to India, and the trans-Atlantic explorers to open the New World, and bring about the inevitable decline of Venetian commercial clout.

London could be approaching a similar point in its history.  The Brexit saga may be counter-productive.  Contemporary politicians promoting their policies with nostalgic memories of a British Empire on which the sun never set may be foisting an opiate on the general public.  We shall see.



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