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Metals trading handbook: A market companion for users of the London Metal Exchange

Paddy Crabbe, Consumet Ltd, UK

 - structure and workings of the exchange
 - risk identification
 - management and trading techniques
 - strategies and instruments available to today's metals traders
 - the crucial areas of internal control, accounting and regulation

Metals Trading Handbook, by Paddy Crabbe, offers an invaluable training manual and reference source for anyone working within the non ferrous metals industry or trading on the London Metal Exchange. At the core of its thorough analysis lies the principle that simple explanation and minimal jargon are invaluable to the practitioner.

Metals Trading Handbook offers positive advice and stimulation to those concerned with the pricing and delivery risks of non ferrous metals. It starts with simple fundamentals and moves onto more complex situations. Its central aim is to give the reader essential building blocks with which to develop a more proactive approach to solving everyday problems. The text examines the way the LME operates, how prices are formed, the significance and timing of "official settlement" prices, how risk in the forward markets occurs and changes, how risk builds up, methods of recognition and hedging the exposure to priced metal, the impact on valuations (marking to market), profit and loss and cashflow.

This is essential for those already involved in the metals business and also for the financial, investment and advisory community internationally.

ISBN 1 85573 347 1
ISBN-13: 978 1 85573 347 3
November 1998
400 pages  234 x 156mm  hardback  
£105.00 / US$180.00 / €125.00

Usually dispatched within 24 hours

About the author

Paddy Crabbe began his metals life as an LME clerk and progressed to dealing in the 'Ring'. Shortly after that he set up and ran a department trading in physical metals. During which time he created and managed many hedging programmes, which combined pricing on the LME, hedging, physical delivery metal on a CIF programme and delivered works basis and foreign exchange. During that time he taught many producers and consumers how to operate on the LME and delivered lectures about the LME in several countries.

Titles which may also be of interest:
Base Metals Handbook
Aluminium
Nickel
Lead and zinc
Copper

Contents

PART 1 THE LME TODAY
PART 2 RISK IDENTIFICATION, MARKET INSTRUMENTS AND USES
PART 3 MANAGEMENT REGULATION AND CONTROL

PART 1 THE LME TODAY

Background, recent history and developments
 - Evolution of London's international markets
 - Changes in metal contracts and terms
 - Recent major events and turning points

Roles, clientele and other uses of LME
 - Main and secondary roles
 - Producer-consumer pipeline
 - Summary of who uses the market and why

Market place and daily routine
 - Location, participants, service providers, contracts, trading methods -Communication

Communication
 - Open outcry, rings, prices quotes, settlement prices, how prices move
 - Daily timetable - Brokers' routine

Forward structure of delivery periods
 - Dates traded - how they relate - Cash/metal flow implications
 - Basic market terms - Description
 - Simple trading actions - Adjusting open positions
 - Cost/benefit of contango/back

PART 2 RISK IDENTIFICATION, MARKET INSTRUMENTS AND USES

Risk identification: Analysis of a market book
 - Analysis of each risk - Longs, shorts, market structure, time decay effect
 - Effect on cash flow - Costs and benefits - Cash employment comparisons
 - Combined effect on a single open position
 - Building towards monitoring risk exposure and P/L contained in a market book exposure

Pricing in physical contracts
 - Producer prices - Link with LME settlement prices
 - Pricing methods, terms and periods - Average, unknown, known
 - Why such variety and flexibility - Why different premiums
 - Dealing costs of hedging

Basic elements of hedging
 - What and when to hedge - Basic hedging framework
 - Using contract terms - Factors to consider
 - How to analyse physical metal at risk - Formula with elementary risk

Practical hedging
 - Selling hedge with delivery - or buy back - Contango helps stock finance
 - Buying hedge in back - Dealing costs - Cash flow effect
 - Optimising contract pricing terms in different markets
 - Locking-in forward price differentials - Hedging annual physical supplycontracts - price lists - Mine production

contracts - price lists - Mine production
 - Average pricing - How to price in, hedge & convert one price to another
 - TAPOs - Known pricing (Back-pricing) - Scrap hedging

Options
 - Outline of - Risks - Users - Markets - Terminology - Basic trading / uses
 - Evaluating cost - Premiums - Constituent parts - Influencing factors

PART 3 MANAGEMENT REGULATION AND CONTROL

Organisation and management
 - LME as an exchange: Objectives - Roles - Management structure - Members
 - Supervision: Discipline - Sanctions - Rule book - Contracts
 - Financial status, ownership and revenues, new business, publicity
 - Brand approval - Warehouse: approval. Location, operating procedures, charges

Brokers: Management, trading and office staff
 - Ownership - Finance: requirements, status and revenues - Departmental roles
 - Creating new business - Brokers' service - Client liaison - Types of order

Regulation, regulators and control
 - Outline of regulatory background, aims, framework, legislation - Financial Services Act (1986) - FSA: Financial Services Authority - SIB - SFA (SRO example) - Regulatory process, guarantees, risk management and controls
 - Recognised Investment Exchange (marketplace regulator)
 - Recognised Clearing House, London Clearing House

Matching and clearing systems
 - Registration and presentation of LME contracts - Novation - Contracts available for registration - Position keeping - Options exercise - Delivery and settlement
 - Margining - Initial - Variation - Outline of London 'SPAN'
 - Prices used - Margin calls and cover - Protected payment system

Internal control, systems and accounting
 - Brokers' control - Pre-trading and order to contract to settlement
 - Back office systems - Accounting: overview of principles for futures and options - Accounts / cash flow - Delivery of metal on warrant - Margining a client - Identifying trades - Non-market priced trades

Appendices
 - LME: Trading times - Contract rules for metals - Rule Book headings
 - SIB: Principles and 40 core rules
 - SIB: Review of metals and summary of recommendations to LME
 - Analysis of metal industry
 - Frequently asked questions
 - LME statistics, trading and stock volumes