trade up to ten years in the future depending on the metal The higher number of transac tions is also related to large number of fnancial trading of metals positions mostly done by institutional investors For physical transactions the agreed price is always set with references to the LME price The LME settlement price is a refection of mark et e xpectations based on demand ofer and metal stock s As the LME accounts for the vast majority of the nonferrous metals trading on terminal mark ets its settlement prices have become the reference prices of the global industry These prices are used even for metals that are not traded on the LME e g O T C such as fabricated products and also form an important element in the pricing ores and concentrates The LME traded metals price is infuenced by various factors Important elements are balance between ofer and demand metal stock in LME warehouses and smelters and trader warehouses Mark et e xpectations are infuenced daily by information such as strik es at a miningrefning plants an une xpected shutdown due to technical complications an announced delay of a new planned mining or refning capacity new metal applications or press releases on growth e xpectations in metal applications etc Important trading activities on futures and options can also have secondary efects on the LME price Evidence of supply and demand impact on the pricing of metals can be seen in the graphics below which show the LME prices for aluminium copper zinc and nick el between January 2007 and January 2019 This clearly shows the V shaped impact of the economic crisis between 2008 and 2010 L atest price evolutions show a sideways movement partially due to overproduction in China This is particular the case for nick el where over the past years important production capacity for nick el pig iron came online 96 A wide variety of factors that infuence the metal price at LME are outside the direct control of either producers or users who have to accept the prevailing price as a given A dis tinguishing characteristic of metals is that no single company can fx the price of its own products independently of what happens in the rest of the mark et One ton of metal of a standard quality from any individual plant can be replaced by material of a similar quality from another Furthermore producers of nonferrous metals have limited options to respond to chang ing LME prices in the short term In this regard price setting in global metals mark ets is very diferent from electricity mark ets which are more local or regional In the power mark et the last or marginal unit put on the mark et sets the price With metals producers the situation is quite diferent Metals producers are not able to change production on an hourly basis contrary to power producers Indeed both curtailment and restart of a primary 96 Nick el institute 4 Price tak ers in a global mark e t The reference price for nonferrous metals lik e aluminium copper nick el lead zinc and cobalt is set at metals e x changes 93 There e xist a large number of metals e x changes around the world which set the prices for diferent types of nonferrous metals The most promi nent of these are the L ondon Metals Ex change LME theNew Y ork Mercantile Commodity Ex changeCOMEX Hong K ong Mercantile Ex change HKMEx and the Shanghai Futures Ex change SHFE Nonetheless the LME remains the predominant player Even though China is the largest producer and consumer of nonferrous metals the high volumes traded on the SHFE follow rather than lead the physical reference price which retains its home at the LME 94 There is moreover no indication that theSHFE is pulling volume from the LME with the additional trading at night 95 The LME connects physical and fnancial mark et participants to create liquidity in a global mark et These participants buy and sell LME futures and options to transfer hedge and tak e on invest in price risk and in that process discover globally relevant prices P artici pants on the LME include Metal producers such as miners smelters and refners Metal consumers such as industrial manufacturers Merchants and physical traders Bank s fnancial funds and commodity trading advisers Proprietary traders Brok ers and clearing institutions The number of transactions on the LME platform is 25 to 50 times higher than physical transactions This high number of transactions happens because buyers and sellers of physical metal use the LME to gain protection from movements in prices Their hedging requirements are ultimately set according to their production or purchasing programmes but they can also be opportunistic and use the LME to lock in sales when prices are high or purchases when prices are low A miner smelter or fabricator could sell an LME contract at a forward date to lock in the revenue to be earned from a future physical sale A merchant could do the same to protect inventory This is called a short hedge Meanwhile an indus trial participant could buy a contract at a forward date a long hedge to fx their future raw material costs They have a lot of future dates to choose from contracts on the LME can 93 Despite the fact that LME prices do not apply to the ferroalloys and silicon they are also e x changed on a global level with globally set prices 94LME 2017 95Klein T odorova 2018 MET ALS IN A CLIMA TE NEUTRAL EUROPE A 2050 BL UEPRINT 37