LME to introduce silver trading
By Staff -- Purchasing, 3/11/1999
A new LME silver futures contract will allow consumers and producers to manage risk more than two years into the future. Silver was traded on the exchange until 1989 when dwindling volumes led to a suspension. But LME CEO David King says the trading this time will be better regulated and the metal will be stored for delivery at multiple sites worldwide. "We are confident we have a product the metals-trading community needs," he says.Still, the silver contract is being introduced at a time when commodity prices are falling and exchanges are facing falling trading volumes. What's more, it is already traded on a spot basis at the London Bullion Market Association, and the silver contract on the New York Mercantile Exchange's comex division is regarded as the price benchmark for the $4 billion/year global silver market.
Nonetheless, the LME is familiar with commodity trading as 90% of the world's base metals are traded there. Also, the LME has undertaken a major regulatory overhaul and increased its published trade data to make business more transparent in the wake of the Sumitomo copper scandal that rocked the market in 1996. Unlike other contracts, which accept silver only in bars or ingots, silver granules will be deliverable against the new LME contract. Granules make up a third of silver consumption by industrial users, such as photographic film manufacturers and the electronics industry.
Silver futures and options will start trading by June. The metal will have open outcry sessions alongside the existing aluminum, copper, tin, nickel, lead, zinc, and aluminum alloy contracts. Silver of 99.9% purity will be traded in lots of 5,000 fine troy ounces, with a weight tolerance of plus or minus 2%. The tolerance is less than nymex, at 6%, and in line with refiners' long-term objectives to reduce tolerance to zero. Silver trade will be cleared in dollars, yen, sterling, and euros. Delivery dates will be daily from cash to three months then every Wednesday from three months to six months, then every third Wednesday from seven months out to 27 months forward.
"The silver market has changed substantially in the last decade," says King. "Silver is now far more an industrial metal than it used to be. The contract we will offer contains elements that aren't available in other existing markets." For example, the physical silver will be deliverable against the contract in many of the LME's existing warehouse locations, which currently stretch from Los Angeles to Singapore. "We will provide multiple delivery points which will be unique to the LME," King says.
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