LONDON: London Metal Exchange (LME) trading volumes contracted for the third consecutive year in 2021, extending a broader decline that dates back to 2015.
However, there are glimmers of hope for the 145-year-old grand dame of industrial metals trading and its owner Hong Kong Exchanges and Clearing (HKEx). The COVID-19 hit to trading activity appears to have passed with monthly volumes growing again over the second half of the year. While some contracts show signs of terminal decline, the exchange continues to grow its footprint in the steel trading arena. And while HKEx has struggled to realise its original ambitions when it bought the London market in 2012, the Hong Kong exchange seems to have struck gold with its own suite of metals contracts. COVID RECOVERY
LME trading volumes slid by 6.0% last year but the headline fall in activity is slightly misleading. Strip out UNA trades, a compliance work-around that has become noticeably less popular after the exchange started charging fees on them, and the decline was just 4.7%. Adjusted for the number of working days last year, the year-on-year fall narrows to 4.3%.
Moreover, 2021 was very much a year of two halves for metals trading activity on the London market. Volumes started trending sharply lower around the middle of 2020, when the disruptive impact of COVID-19 was spreading in full force around the world. That slump extended to May 2021, since when LME volumes have shown signs of stabilising and growing again.
It’s helped that metals prices have rallied hard from their coronavirus lows in the first quarter of 2020. That’s rekindled interest from investors who fled the sector over the prolonged downturn in the first part of the last decade.
MICRO OR MACRO?
HKEx has struggled to define a coherent strategy for its London purchase and it’s tempting to see the decline in volumes since 2012 through the prism of the internal frictions that have characterised the relationship. These have most recently centred around the fate of the LME’s iconic open-outcry trading ring, which resumed in September after an 18-month hiatus but in reduced form.