What is the LME?
LME · London Metal Exchange
The pricing reference for base metals including aluminium, copper, zinc and tin. Most physical contracts are written as the LME cash or three-month price plus or minus a negotiated premium reflecting grade, location and delivery terms.
Key points
- Daily prompt dates to three months, not monthly contracts.
- The physical premium is not margin — it is grade, form and location.
- Warrants are financeable, which makes LME metal liquid working capital.
At a glance
| Metals | Aluminium, copper, zinc, lead, nickel, tin |
|---|---|
| Key quotations | Cash and three-month |
| Physical premium | Negotiated on top, reflects grade, form, location |
| Warrant | Document of title to metal in an approved warehouse |
| Backwardation | Cash above three-month — physical tightness |
What the exchange does
The London Metal Exchange is the world’s reference market for base metals — aluminium, copper, zinc, lead, nickel and tin. It sets prices through open outcry in the Ring, electronic trading and an inter-office market, and publishes daily official prices that physical contracts are written against.
Its distinguishing feature is the date structure. Unlike most futures markets with monthly contracts, the LME trades daily prompt dates out to three months, reflecting its origin as a market for hedging metal in transit.
Cash, three-month and the premium
Two quotations matter for physical trade: cash, for immediate settlement, and three-month. Most physical contracts price off one of them plus a negotiated premium.
The premium is not a margin. It covers the difference between exchange-deliverable metal in a warehouse somewhere and the specific grade, form and location the buyer needs. That is why the Yangshan premium for copper into China and the Midwest premium in the United States move independently of the LME price itself.
Warrants and warehousing
Metal delivered against LME contracts sits in approved warehouses and is represented by a warrant, a document of title. Warrants can be financed, which makes LME-grade metal an unusually liquid form of working capital.
It also means LME stock levels are a visible signal. Falling stocks with a tightening cash-to-three-month spread — backwardation — is the market saying metal is needed now rather than later.
Frequently asked questions
- What is the difference between LME cash and three-month?
- Cash is the price for near-immediate settlement; three-month is the price for delivery three months forward. Physical contracts usually price against one of the two plus a premium.
- What is an LME premium?
- The amount paid above the exchange price for metal of a specific grade, form and location. It reflects physical availability and logistics, not the seller’s margin, and can move independently of the LME price.
- What does backwardation mean on the LME?
- That the cash price is above the three-month price, indicating the market values metal now more than metal later — typically a sign of physical tightness.
Related terms
Sets the standards and reference prices for precious metals. Silver and gold contracts are typically written against the LBMA price for a stated pricing date, with delivery quoted loco a named vault city.
The defined period whose average exchange price sets the contract price — for example the month following shipment. Because prices move during transit, the QP determines who carries that exposure.
The benchmark primary aluminium grade: 99.7% minimum aluminium with tightly capped iron and silicon. The reference quality behind most LME-linked aluminium ingot contracts.
Zinc of 99.995% minimum purity, the standard grade for galvanising and die-casting, specified under ASTM B6. Anything below this is a lower commercial grade and prices differently.
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