From the January 01, 2010 issue of Futures Magazine • Subscribe!

Metals: New York-London Connection

Although the futures and options contracts traded at the Comex division of the New York Mercantile Exchange (Nymex) both of which are part of CME Group and overseas at the London Metal Exchange (LME) share approximately the same price movements, they are separated by the time difference between New York City and London.

“Copper futures: Comex and LME” (right) illustrates the close connection between the two prices, charting the daily LME official settlement price and Comex opening price over five months, May 1 through Sept. 30, 2009.

The LME provides for trading in liquid, standardized futures and options contracts in non-ferrous metals, steel and plastics. LME pricing continues 24 hours each day through three methods: a trading ring, an inter-office telephone market and the LME Select electronic trading platform. Official settlement prices result from open-outcry trading between ring dealing members.

LME is a principal-to-principal market in which buyers and sellers wishing to hedge price risk access futures through trading members. The exchange also functions as a market of “last resort,” providing physical delivery as a source of material or as a means to sell excess stock in times of over-supply. In the chart, LME copper is represented by three-month grade-A copper futures.

The trading unit for copper on the Comex exchange is 25,000 lbs of high-grade copper with the symbol HG. Tick size is 0.0005¢ per lb. or $12.50 per contract, and the value of one trading unit is $25,000. In the chart, New York copper is represented by the December 2009 contract.

The LME trading unit for Grade A copper is one tonne (one metric ton, 1,000 kilograms or 2,204.623 pounds of metal). LME prices per tonne are listed in U.S. dollars, and for the purposes of our charts the LME prices are converted to price per pound to approximate the price scale of Comex futures. For example, the LME price for copper grade-A three-month average buy and sell was $6,153 on Sept. 30, 2009. Converted to price per pound, the LME futures produce $2.7910. The opening price per pound on Comex on the same day was $2.7175, for a difference of 7.35¢.

The five-hour time difference between London and New York means that the official settlement prices are announced at the LME at 8:15 a.m. in New York, at the beginning of trading at Comex. This is at 1:15 p.m. in Great Britain, the end of the ring trading session.

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