The London Metal Exchange is launching the world’s first cobalt and molybdenum futures contracts to be traded on exchange on 22 February.
The new contracts will introduce regulated exchange pricing, transparency, risk management and clearing to these two metals used in a wide range of applications.
Cobalt and molybdenum are largely by-products from nickel and copper mining. Together their market value was estimated at around USD7bn in 2009, a year of low prices as a result of the global economic downturn. In comparison, the tin market’s value last year was close to USD5bn.
Historically cobalt and molybdenum have traded without the benefit of regulated exchange security and transparency.
Trading on the LME will introduce transparent price discovery and neutral reference pricing; flexibility of trading on Select, the inter-office telephone market, and the Ring, the exchange’s open outcry trading floor; leveraged trading and risk management; and counterparty credit security and guarantees via clearing on LCH.Clearnet.
Support for LME trading of both metals has been demonstrated by producers with cobalt and molybdenum brands registered for good delivery. Cobalt producers with good delivery brands include Vale Inco, Votorantim, Sumitomo and a number of Chinese producers. Molybdenum producers include Chile’s Molymet and Mexico’s Molymex. In total, 12 cobalt and molybdenum brands are already registered with the LME with further applications made to the exchange.
Consumers are also expected to use the LME’s minor metals prices as contract reference prices. Brazil’s Votorantim and China’s Jiangsu cobalt contracts with LN Metals are both being referenced against the LME contract. Others are expected to follow.
Chris Evans, head of business development at the LME, says: “There has been incredible volatility in cobalt and molybdenum prices in recent years and there is a tangible need for a terminal market to hedge price risk. Industry will also benefit from a transparent price discovered on a regulated exchange.”
The daily official prices for molybdenum and cobalt will be derived from the 12:20 ring in the LME’s open outcry trading floor in London.
