London Metal Exchange reaps the rewards of tariff turmoil
The LME Index basket of base metals plunged 11% after the blanket tariffs were announced on April 2 as metal markets took fright at the prospect of a full-blown trade war.
The wholesale unwind of positions and subsequent re-engagement as prices staged a partial recovery resulted in record daily volumes on April 7 and all-time high monthly trading action.
Chaos tends to be good business for the 148-year old London market, which has been owned by Hong Kong Exchanges and Clearing since 2012. Activity last spiked in April 2024, when the United States and UK announced sanctions on Russian metal.
A more nuanced tariff impact on the CME exchange in the United States suggests the heightened trading activity has been driven by the physical supply chain rather than funds.
Back from the brink
Trump's tariffs' blizzard has accelerated the LME's recovery from the 2022 nickel crisis, when it risked what then head of LME Clear Adrian Farnham described as "a death spiral".
It took almost a year for volumes to recover after the exchange's decision to suspend its nickel contract and cancel trades, a call that was ultimately vindicated in the London High Court.
Nickel volumes returned to pre-crisis levels last year and average daily volumes surged another 25% in the first half of this year despite the price spending most of the time treading heavy water around four-year lows.
It helps that there is a lot of nickel to be financed. LME stocks have risen from 34,000 metric tons in the middle of 2023 to over 200,000 with another 71,000 tons sitting off warrant in LME warehouses.
Low prices and an oversupplied market have also combined to revive the LME's dormant cobalt contract.
First-half volumes of 6,089 lots were the highest since 2019 and there are currently over 1,000 tons of the battery metal in LME warehouses, most of it off warrant. The LME, however, is still playing catch-up with its U.S. counterpart in the battery metals space. CME's first-half cobalt volumes jumped by 86% year-on-year and those of lithium hydroxide by 76%.
Who's afraid of Doctor Copper?
The copper market has been particularly tumultuous ever since the Trump administration announced an investigation into U.S. imports back in February.
The focus has been on the arbitrage between the CME's U.S. contract and the international price traded on the LME.
However, that's not been reflected in trading volumes on the CME futures contract which fell by 40% year-on-year in the first half of 2025.
It's been a highly volatile trade and one dominated by physical traders moving metal to the United States to beat the possible imposition of import tariffs.
The investment community which normally populates the CME copper contract has evidently been scared off.
Money manager positioning is historically light with outright long positions flat-lining since early April and outright short positions falling to three-year lows.
Chinese investors have become equally risk-off with copper activity on the Shanghai Futures Exchange falling sharply in May and June. Copper trading activity shrank by 14% year-on-year over the first half of the year.
Physical aluminium boom
CME's physical aluminium premium contracts, by contrast, saw activity mushroom after Trump lifted U.S. import duties to 25% in March and then doubled them to 50% in June.
Since the CME's futures contract mirrors the LME's international product, the arbitrage has been traded in the U.S. Midwest premium, which has unsurprisingly rocketed to record highs.
So too have volumes, which surged by 69% year-on-year to over 1.7 million tons in January-June.
The other leg of the physical arbitrage is evidently the CME's European duty-paid contract. Volumes more than doubled to 48,142 contracts in the first half of 2025, almost matching last year's full 12-month tally.
These contracts are by their nature aimed at meeting the needs of the physical supply chain and it's clear that industrial hedgers have been actively using them to mitigate risk as global flows of metal readjust to U.S. tariffs.
Tiny tin has new friends
Tin has historically been the smallest and least liquid of the LME's core base metals contracts, but has been steadily attracting more interest over the last couple of years.
LME volumes increased by 16% in both 2023 and 2024 and they were up another 17% in the first half of this year.
A total 902,965 lots traded in January-June, equivalent to four and a half million tons. It's the highest level of activity in the first half of any year since 2014.
The LME market was carrying high stocks of over 12,000 tons back then. Current inventory is around a third of that, split between on and off-warrant stocks.
Fund participation, though, has been rising with investors holding record-sized long positions on the LME contract in March.
They got rewarded with an April price meltdown. But tin's combination of bullish electronics demand story and a structurally challenged supply chain has put it firmly on the investment radar.
The opinions expressed here are those of the author, a columnist for Reuters.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Filipino Times
2 hours ago
- Filipino Times
Philippines hit with 20% U.S. tariff as Trump cites ‘unfair' trade practices
The United States has announced a significant tariff hike on Philippine exports with U.S. President Donald Trump issuing a formal directive imposing a 20% duty on goods coming from the country starting August 1. In a letter sent Wednesday, Trump said the decision was made in response to what he called 'long-standing trade imbalances' and 'non-reciprocal trade practices' between the U.S. and the Philippines. 'We have had years to discuss our trading relationship with the Philippines, and have concluded that we must move away from these long-term, and very persistent,' Trump said. 'Trade Deficits engendered by the Philippines' Tarift, and Non-Tariff, Policies and Trade Barriers. Our relationship has been, unfortunately, far from reciprocal,' he added. The Philippines was one of seven countries named in the new round of tariff letters, which also targeted Algeria, Brunei, Iraq, Libya, Moldova, and Sri Lanka. The new 20% tariff for the Philippines replaces an earlier 17% rate announced in April, most of which had been suspended until July 9. The revised rate is now set to take effect in full by August 1.
The National
8 hours ago
- The National
Former Builder.ai CEO Sachin Dev Duggal withdrawn from tech conference amid controversy
Sachin Dev Duggal, founder of the now-defunct artificial intelligence start-up has been pulled from the speakers line-up at a technology conference in Paris. Former employees emailed the organisers of the Raise Summit − which ended on Wednesday − with complaints over the nature of the company's demise. In May, Mr Duggal's former company, which had offices in London, New York and Dubai, began insolvency proceedings. An email provided to The National by Raise organisers said Mr Duggal had been invited to speak to hopefully provide an insight into how the company's fortunes turned. But they said they received 'numerous emails", including from employees who lost their jobs, Raise said. 'However, given the security concerns and the fact that we did not have full clarity on the story, we ultimately decided not to move forward featuring him at the event.' This is the latest in a series of incidents that have marked the fall of a company that once achieved unicorn status − receiving a valuation of more than $1 billion − and a significant investment from US technology giant Microsoft. Some workers at the company have told The National that on legal advice, they had been told to preserve documents and other evidence that may relate to a possible criminal investigation. Some also said they had been issued subpoenas from the US Attorney's Office in Manhattan. In 2024, Mr Duggal briefly spoke to The National as he appeared at an event hosted by the Dubai Multi Commodities Centre, which had just announced a new AI centre. 'With this centre, we're helping to unveil a portal to global commerce,' Mr Duggal said then, reflecting on why chose DMCC as an ecosystem partner. 'We didn't want to be a software company just surrounded by other software companies, we wanted to be surrounded by potential customers and peers.' Yet ultimately, failed to meet revenue expectations. The company had promised to make mobile app development as 'easy as buying a pizza' through the use of heavily promoted AI technology, but it struggled to create reliable products, disappointing investors such as Microsoft and sovereign wealth funds in Qatar. To try to stabilise the situation, Mr Duggal requested more investment funds, and an emergency loan, months before he was stripped of the chief executive title. There have been allegations of financial irregularities, while the legitimacy of the company's AI technology has also been questioned in recent months by several news outlets. In May, Mr Duggal posted a message on LinkedIn within a alumni group created on the platform. 'I don't think the story is done yet, but irrespective, if I can be of any help to any of you as you make this transition in life please know I'm only a message away,' he posted in part. 'And more importantly – if I didn't listen, if I was short, if I was unreasonable – I'm sorry.' On main LinkedIn page, comments from unhappy former customers are plentiful. 'What are you doing to get all of your customers their code for completed apps they paid for?' one person wrote. 'Don't believe these fancy conferences, flying around, inviting celebrities … It's all hype and nonsense,' wrote another, referring to the various events where Mr Duggal often dispensed start-up wisdom. A WhatsApp group created by former employees is full of criticisms as well, with some making allegations about not being paid for work done.
The National
8 hours ago
- The National
Few Fed officials support rate cut this month, meeting minutes show
Only a small contingent of officials at the Federal Reserve support a US interest rate cut this month, minutes released from the central bank's June meeting showed on Wednesday. Fed officials are debating the effects that President Donald Trump's tariffs will have on inflation. Most policymakers noted during the June 17-18 meeting that tariffs "could have more persistent effects on inflation", while a few thought it would lead to a one-time increase. "A couple of participants noted that … they would be open to considering a reduction in the target range for the policy rate as soon as at the next meeting," June's meeting minutes read. At the same time, some officials said they would be open to holding rates steady for the whole year. Fed officials last month agreed to hold the central bank's interest rate target range at between 4.25 and 4.50 per cent, extending their pause for a fourth straight meeting. The Fed holds its next two-day meeting on July 29-30. Two top Fed officials – governor Christopher Waller and vice chair for supervision Michelle Bowman – indicated their support for a rate cut this month shortly after the June meeting, with the Mr Waller pointing to his belief that tariffs will have a one-time inflationary effect. Mr Waller and Ms Bowman are both permanent voting members on the rotating 12-person Federal Open Market Committee. However, those views are at odds with the broader rate-setting FOMC, including Fed chairman Jerome Powell, who has gone for a more cautious approach towards cutting rates. The June minutes reflected Mr Powell's more cautious posture. "Participants agreed that although uncertainty about inflation and the economic outlook had decreased, it remained appropriate to take a careful approach in adjusting monetary policy," they read. Employment data released last week further evaporated the chances of a rate cut this month. Data released by the Labour Department showed the economy topped expectations by adding 147,000 jobs in June while the unemployment rate unexpectedly fell from 4.2 per cent to 4.1 per cent. Traders have now priced in the odds of a July rate cut at just 6.7 per cent while also reducing expectations of a cut in September, data from the CME Group showed. Still, minutes from the June meeting showed "most participants" expect to cut rates at some point this year. Projections released alongside their rates decision showed most Fed officials anticipate two rate cuts in 2025, in line with market expectations. The Fed's cautious stance has drawn the ire of Mr Trump, who in recent weeks has increased tension with the central bank and Mr Powell. Mr Trump earlier on Wednesday said the current Fed rate should be "at least" three points lower, to reduce the cost of servicing the country's debt. Other members of the Trump administration have also begun criticising Mr Powell as speculation increases over who might be his successor. Among his critics is Treasury Secretary Scott Bessent, who has lashed out at the Fed chair, a step that his predecessors have typically avoided. Mr Trump had previously toyed with the idea of firing Mr Powell, although a recent ruling from the Supreme Court granted Federal Reserve officials protection from the President. On Tuesday, he repeated his call for Mr Powell's resignation and gave Congress his approval to investigate him over accusations among Republicans that he had misled politicians about renovations at the Fed's headquarters in Washington. Mr Powell has maintained that he will serve out his term as Fed chairman, which expires in May 2026. He has not said if he will remain on the board for his duration as Fed governor, which expires in 2028.
