London Metal Exchange reaps the rewards of tariff turmoil
The LME Index basket of base metals (.LMEX), opens new tab 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 (0388.HK), opens new tab 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 (CME.O), opens new tab exchange in the United States suggests the heightened trading activity has been driven by the physical supply chain rather than funds.
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%.
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.
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.
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.
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