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London Metal Exchange Starting First New Products in Two Years
Feb 22,2010 17:02CST
industry news
Source:SMM

LONDON, Feb. 22 -- The London Metal Exchange, the world's biggest metals market, begins trading today in cobalt and molybdenum, commodities used in everything from jet engines to stainless steel.

The 133-year-old exchange will trade futures on the metals on its floor for five minutes a day starting at 12:20 p.m. local time. Codelco, the world's second-largest molybdenum producer, wants to support the molybdenum contract, according to Gonzalo Cuadra, a Codelco managing director.

The LME is expanding into so-called minor metals as it opens a first overseas office in Singapore and proposes a venture with the London-based Baltic Exchange to bring trading of freight derivatives onto a new exchange. The bourse handled $7.41 trillion of contracts last year, including 49.7 million in aluminum, 26.5 million in copper and about 30,000 in Mediterranean steel billet.

Trading in the new contracts may exceed steel "because moly and cobalt have a history of volatility and they have a wide range of industrial applications," said Stephen English, marketing manager of SFP Metals (U.K.) Ltd. in London, who has traded cobalt for more than 30 years. "We'll watch the first day with interest and see how it goes from there."

Cobalt prices dropped 2.4 percent to $19.52 a pound this year, according to Metal Bulletin. The benchmark molybdenum oxide contract quoted by Metal Bulletin climbed 43 percent to $17.25 a pound. The LME estimates both markets combined at about $7 billion, compared with $5 billion for tin, which the bourse already trades.

Freeport Monitoring

"While we do not intend to utilize the molybdenum contract upon its launch, we will continue to monitor the activity on the exchange," said Bill Collier, a spokesman for Phoenix-based Freeport-McMoRan Copper & Gold Inc., the world's largest molybdenum producer.

Production of molybdenum last year was about 440 million pounds (199,581 metric tons), while cobalt output was 54,000 tons, according to Eric Taarland, a senior consultant at London research company CRU. Output of both metals exceeded demand, according to CRU estimates.

Molybdenum demand has gained because of growth in stainless steel output, while cobalt consumption was driven by sales of rechargeable batteries, according to Taarland.

There are 12 cobalt and molybdenum brands registered for delivery against the LME contracts, including Vale SA's Vale Inco unit and Molibdenos y Metales SA.

The LME plans to combine its Mediterranean and Far East steel billet futures into a global contract. Volumes reached about 3.3 million metric tons of steel, worth $1.4 billion, since they were introduced in April 2008 to Feb. 12, according to the exchange.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net.

 

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