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01 May 2019

Well Done, LME



There may be rival claims from Shanghai or New York, but the reality is that the LME is still the most influential metal exchange around. That’s partly because it got there first, it was founded in the world’s most significant trading city and it benefitted from a legal system accepted and trusted by the world’s traders, but also because it has managed to keep itself up to date and to listen to the industry that it serves. LME pricing is used by the non-ferrous world because it is trusted and independent. Of course we can all point to periods when questionable activity has been seen, but that is largely short-term versus a long term stability.

So it’s heartening to see that the Exchange is looking actively at what is set to be one of the major issues addressing the metal industry in the coming period - that of the sourcing of metals. It’s an inconvenient fact of geology and political development that orebodies  - mostly - are to be found in countries with less than fully democratic regimes: I exclude, of course, the likes of the US, Canada and Australia. The result of that, combined with the other inconvenient fact that metals are largely anonymous and very freely exchangeable for money, has been that unscrupulous practices have long bedevilled the extractive industries. Indeed, one could remark that several fortunes have been built because of them.

Effectively, there are three issues to consider: environmental concerns, labour practices and corruption and financial irregularities. These are not easy things to monitor, and the LME seems - under consultation with members/interested parties - to be making the sensible decision not to introduce its own list of requirements, but rather to follow OECD guidelines. Thus what will be required is for all listed brands to undertake a Red Flag Assessment, as outlined by the OECD, in order to maintain it’s listed status. I’m simplifying somewhat here, because there is a timeline attached and I’m not going to go into all the detail. My point is that the LME is - quite correctly - using its position and its reach to support responsible sourcing of metals.

However, all is not necessarily rosy. The demand from consumers to know where their metal comes from and to be sure that it is not causing unnecessary environmental damage nor is it being mined by children in primitive conditions, for example, is largely driven, I would suggest, by the insatiable desire for batteries to store power for phones, cars, laptops, houses and the rest. The difficult metal there, from an ethical perspective, is of course cobalt. Now, cobalt is indeed an LME metal these days, but it would be naïve to assume that LME branding is as significant in that market as it is in the more traditional copper, zinc, aluminium and so on. More than the LME will be needed to eradicate the illegal, immoral cobalt mining still going on in the DRC. 

It’s good, though, that the LME is acting in this. And because of its position in the market, it has weight behind it with the sanction of suspending brands which do not conform to the requirements. This should enable those corporations - Apple, BMW, Panasonic and many others - which have already expressed their need and desire for a way of ensuring that the metals they purchase are ethically sourced to have a standard on which they can rely. This is genuinely a big step forward, and we should applaud the LME for grasping the nettle.



     

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