LONDON (Reuters) - Aurubis (NAFG.DE), Europe’s largest copper producer, is strongly opposed to a sale of the London Metal Exchange (LME) because a new owner could change a pricing system vital to industrial users’ business models, an executive at the German company said.
Aurubis executive board member Stefan Boel told Reuters the company would vote against the sale of the LME, no matter what the price, and that other industry shareholders would likely do the same.
“I would be surprised if other industry players would be in favor of a sale. From all indications I have got that would not be the case,” he said.
The LME declined to comment.
The LME uses a unique prompt date structure, which sets it apart from other futures exchanges.
Aurubis, a traditional user and shareholder in the exchange, punches above its weight. While it is one of the smaller stakeholders in the LME, the 146-year-old company is a big voice in the copper industry in Europe.
It produces 1 million tonnes of copper cathodes a year from copper concentrate, scrap and recycling raw materials and is the world’s largest copper recycler.
The LME board met on Thursday to consider initial bids for the world’s biggest marketplace for industrial metals, which some analysts and industry sources have valued at around 1 billion pounds ($1.57 billion).
Boel said the company felt “highly uncomfortable” with how discussions over the potential sale of the LME were being conducted.
“People are getting blinded by the dollars and euros which they can make out of it. It’s all about the valuations of the LME and possible profits,” Boel said.
“But we’re forgetting the fundamental fact that the LME was set up as a body for price discovery and risk protection for the non-ferrous metal industry. It has a true industrial purpose.”
The member-owned LME provides a transparent forum for all trading activity and as a result helps to ‘discover’ what the price of material will be months and years ahead, the LME says on its website.
This helps the physical industry to plan forward in a market subject to often severe and rapid price movements. Such is the liquidity at the LME that the prices ‘discovered’ are recognized and relied upon by industry throughout the world.
LME contracts allow all those along the metal supply chain - from miners, smelters and fabricators, to merchants and consumers - to hedge against price risk.
Unlike other commodity markets, which are usually based on monthly prompt dates, most LME futures contracts offer daily and weekly prompt dates. The use of this unique prompt date structure is an important difference between the LME and other futures exchanges.
Boel feels this could change under a single new owner who would alter the system and, inevitably, its current ownership structure, with its financial, broker and industry members.
“Suppose it goes totally wrong; the consequences for the whole of our industry is beyond our imagination. We cannot afford any flaw in the system,” Boel said.
Potential bidders include CME Group (CME.O), Hong Kong Exchanges and Clearing Ltd (HKEx) (0388.HK), NYSE Euronext NYX.N and the InterContinental Exchange (ICE) (ICE.N), sources and media reports have said.
“We want to keep the current well-functioning elements, like the prompt date system which is well suited to the industry cash-flow management,” said Marion Finney, Aurubis head of recycling materials procurement and a member of the LME’s copper committee.
“But at the same time the LME needs to modernize and if it goes into clearing - as an addition to pricing, hedging and warehousing - then that is a step in the right direction.”
The LME said in December it had decided to create its own clearing service.
($1 = 0.6369 British pounds)
Editing by William Hardy