L.M.E.-pure supply and demand

Press, 2 September 1980, Page 24

L.M.E.-pure supply and demand

NZPA staff correspondent • London Every five minutes, the London metal Exchange bursts into frenetic activity. To the outsider, the central room which houses the exchange is an unintelligible hubbub of noise and hustle. But to the initiated it is supply and demand in one {of its purest forms — the pinpointing and setting of world prices for the day, and the buying and selling of metal to hedge against price fluctuations for the future. For a country whose export of metal is vastly outweighed by its imports, the metal exchange plays a vital role. z Dealing in seven metals — copper, tin, lead, zinc, silver,, aluminium, and nickel —• it| sets, in its own words al “pure world supply and de-1 mand price .. . ( —) free and | impartially determined price; (which) plays ? vital role in: a very complex and devel-: oping world economy.” The exchange, according! to its own booklet: “acts asa barometer of world trends; in supply and demand fori metals which are inter-1 national commodities ... and the whole time points the way to an allocation of resources , . : and a level of demand . . . and assists in keeping the two in balance.”

Capital investment industries and durable consumer goods constitute the main end-users of the metals dealt in by the exchange. “It is because the demand for metals is so much affected by the trade cycle and because a large proportion of their supply is derived thousands *of miles from consuming industry With all the of labour and political 7 uncertainty, that :, the world supply of, and deniand for them is seldom in equilibrium,” the booklet says. : Truly international,' with more than . 60 per cent of the inner sanctum of “ring dealing members”' nori-British-owned companies, the' exchange is physically dominated by “the ring.” The term is apt. The main

1 room of the exchange in an unpreposessing building near the Leadenhall Market in the city of London is virtually bare but for a single circle of leather-clad benches. Five days a week at precisely 11.45 a.m., the muted atmosphere of the big room is suddenly shattered. For precisely five minutes! the dealers actually sitting in the ring shout at each other, writing in notebooks, and waving their arms about. Behind them, assistants watch every move and listen closely, relaying trans-1 actions and prices by the same “tic-tac” hand signals used by British bookies, to! other colleagues on open: telephone lines. I At 11.50 a.m., the room is quiet again. Trading of “opItions in all metals” has ceased, For two sessions throughout the day — one hour and 25 minutes in the morning, and one hour and 10 min-, utes in the afternoon — the I pattern continues. In five-minute bursts the. dealers trade in the different; metals handled by the ex-i change, one metal at a time, j , At the end of the morning'

iisession a “quotations com-1 remittee” of. three exchange j members sets an ’‘official i r price for the day. (These are > the metals prices published, by "The Press”, at irregular • intervals.) ■! < I In a year, thousands of i millions of dollars worth of (transactions are sealed in ; I this way. ;■ The metal exchange peri forms three basic, but com;(pl'ex. functions — registering' ; dai|y prices, . guaranteeing • delivery: and quality, and 1 allowing'for “hedging. ■ •i By registering the daily : price,. quotations The exchange indicates on a day Jby day basis world trends m i! supply and demand for ! metals —■ prices which re- ; fleet world conditions and are often used as the basis of contracts in. the metal! trade. .' ■’r It allows for metals to bei bought and sold at any time.l —providing for the buyer a* guarantee of delivery and quality, and for the seller a: guaranteed market for any < tonnag? he has available. ! i And in a high-risk busi-l mess where there is no: “force majeure” clause to I ■ protect parties from events-!

•loutside their control, it i allows ''hedging” to min'limise losses which might be s'massive in a fast-moving [.market. . r Essentially, "hedging” allows traders to make offi setting sales or purchases ! against firm commitments, i Buying or selling “hedges” are used to establish the ■ profit margin on a specific ■ transaction and protect it I'from sudden price fluctua- ; tions. I “For perfect hedging," the exchange says, "the pricey of the metal for physical • delivery, and the London ■ r Metal Exchange quotations i must move together. This ideal situation does not 'always exist and skill is needed to offset the reduced Iprotection that can occur when the two prices move (out of line.” l’ Founded in 1877 in Lombard Court .the exchange 'soon outgrew its original premises and' moved to it? ‘current home near the Lead- .' enhall Market. < j 1 Now~ it is on the move - lagain, and will shift late this* year or early in 1981 td' t brand-new offices near the . ■ Smithfield meat market.