Wrong kind of LME experience?
This isn’t going to be a long read, mainly because I still feel I’m on holiday, but just a couple of thoughts about where the LME is, and where it may be going.
As someone recently pointed out to me, amongst the 300-odd employees of the Exchange, a vanishingly small number have any real experience of metal trading. Well, you could of course adopt the view that that is a complete irrelevance, since they are running an exchange, not trading metal on it. It sounds reasonable, but then would the situation leading to the fiasco over the nickel contract earlier in the year have developed seemingly without being picked up had there been more market expertise in place? I can’t answer that, but it’s an interesting question.
While on the subject of the nickel problems, it’s intriguing to me that the investigation into what happened and why will be carried out by a – doubtless highly-respected and highly competent – consultancy firm; nothing wrong with that, but I do wonder if any consideration was given to trying to tap into the wealth of experience represented by the large number of former LME traders, who still follow keenly what is going on in the market? Just a thought.
Finally, one that I think is important. For quite some time now, the LME, overtly or not, has sought volume from what we can call the investment or financial business. That is quite understandable, because it is where the volume growth should come from, and it has been what has paid the piper. But there is a danger here; if the LME ceased to exist, frankly that would not really matter to the investment players – they would simply transfer their interest to another financial market. But for the metals trade, the LME fulfils an essential role in facilitating the pricing of the value chain of base metals; and base metals are a basic essential of our modern society. For the trade, if the LME were to cease to exist, it would bring in a major upheaval; not insurmountable, of course, because human ingenuity would be able to cope.
Go back to my first point; is there not a danger for the business of the situation where knowledge and experience of the markets being traded is largely absent from the cadre running and managing the Exchange? This is in no way intended as a criticism of the executive, by the way, but rather a concern that the “for profit” model of the Exchange may in the end divorce it from its true roots.