Handbook of Multi-Commodity Markets and Products: Structuring, Trading and Risk Management

CHAPTER 7 Industrial Metals Markets and Products^*

Alessandro Porru

7.1 GENERAL OVERVIEW

Industrial metals can be distinguished as ferrous or non-ferrous metals in relation to their iron content. They are defined as ‘industrial’ to address their end use and distinguish them from precious metals (gold and silver, platinum and palladium). The most important category market-wise is that of non-ferrous metals, also called base metals: aluminium and aluminium alloys, copper, lead, nickel, tin and zinc. Later in this book we will discuss the historical importance and the physical features of these metals, which contributed to the formation of a liquid market.

Other secondary metals will also be mentioned, as well as some recent efforts to develop a market based on ferrous and ‘non-elemental’ metals. We will nevertheless observe that steel (an alloy consisting of iron and carbon), which is heavily used in modern industry, also struggled to develop a liquid financial market.

Unlike most commodities, where several exchanges challenge each other to attract liquidity, base metals trading concentrates on the London Metal Exchange (LME). The history of the LME goes together with that of the base-metals market. Therefore, this chapter starts with a brief history of the LME. It follows with an overview of each metal's characteristics, consumption data and industry uses. Since the market is not based on non-ferrous metals alone, and not exclusively on the LME, the most promising newcomer contracts ...