On Monday, October 13th, the London Metal Exchange (LME) announced plans to introduce a new mechanism to determine how much premium customers are willing to pay for metals that are produced in a low-carbon manner and meet other sustainability standards.
Some miners have complained that the metals they produce using renewable energy cannot compete with the cheap products made from coal.
As the world's oldest and largest industrial metals market, the LME previously refused to launch an independent sustainable metals contract on the exchange on the grounds that it would dilute liquidity. Chief Executive Officer Matthew Chamberlain said that many end users are reluctant to pay higher prices for sustainable products, and there may be no premium space for certain metals at all.
In an interview at the LME Weekly industry conference, he said, "If there is no sustainable premium, we are more than willing to release zero premium data." I think it is as important to clearly know that there is no premium as to know that there is a premium.
Under this new initiative to be launched in the first quarter of next year, the LME will expand its existing partnership with the digital platform Metalshub, which has already started trading low-carbon nickel.
As long as they meet a series of sustainable standards, LME-branded copper, aluminum, nickel and zinc products can all be traded in the sustainable section of Metalshub. The LME stated that these standards include those based on internationally recognized carbon footprint caps and third-party sustainability standards.
The parent company of the exchange, the Hong Kong Exchanges and Clearing Limited, has established a new company in Dubai to independently set the premium price. If the trading volume of the Metalshub platform is insufficient, the new company - Commodity Pricing and Analysis - will be responsible for calculating the buying and selling quotations and evaluating the prices.
LME data shows that since March last year, the platform has completed 488 tons of low-carbon nickel transactions.
The LME, which has a history of 148 years, has released a discussion paper outlining the premium pricing method it intends to adopt.
Frank Jackel, the managing director of Metalshub, said that the platform's trading volume would be increased by adding major metal varieties such as copper and aluminum. He said, "This aligns with our vision - in the long term, more and more transactions will take place through digital platforms and spot trading venues like ours." When transactions still rely on phone calls and emails, the market needs to become more efficient and break away from the outdated model.
