What is a quotational period?
QP · Quotational Period
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.
Key points
- Fixes price by reference to a future window, not the day of agreement.
- Allocates a specific exposure — neither side is doing the other a favour.
- Because it is defined in advance, it can be hedged.
At a glance
| Stands for | Quotational period |
|---|---|
| M+1 | Average of the month after shipment |
| M+3 | Average three months after |
| Why it exists | Metal in transit takes time to arrive |
| Hedged with | Futures matching the period |
What a QP does
The quotational period is the span of dates whose average exchange price determines the contract price. Written as M+1, M+3 and so on, it fixes the price by reference to a future window rather than the day of agreement.
M+1 means the average of the month following the month of shipment. M+3 means three months after. The convention exists because metal in transit takes time to arrive, and both sides need a rule for which prices count.
Who carries the risk
Between agreement and the end of the QP, the price is unknown. Whoever is exposed to that movement depends on which way the QP is set relative to the physical flow, which is why QP is negotiated rather than assumed.
A seller pricing on a forward QP in a falling market realises less than the price on the day of shipment. In a rising market the same structure works in their favour. Neither party is doing the other a favour by agreeing a QP; they are allocating a specific exposure.
Hedging against it
Because the QP is defined in advance, it can be hedged. A producer selling on M+3 can sell three-month futures to lock the realised price, and a consumer buying on the same basis can do the reverse.
That is the practical reason exchange-referenced pricing dominates physical metal trade: it makes the price risk separable from the physical transaction and transferable to someone who wants it.
Frequently asked questions
- What does M+1 mean in a commodity contract?
- That the contract price is the average exchange price over the month following the month of shipment.
- Why do contracts use a quotational period instead of a fixed price?
- Because metal in transit takes time to arrive and both sides need an objective rule for which prices apply. A defined period can also be hedged, which a negotiated fixed price cannot be as cleanly.
- Who benefits from a forward QP?
- Neither party inherently. It allocates price exposure over a defined window; whether it helps depends on which direction the market moves and which side of the physical flow you are on.
Related terms
An initial payment, commonly 80–90% of estimated value, released against shipping documents, with the balance settled once final weights and assays are agreed at discharge. Standard practice for concentrates.
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.
The analytical determination of metal content in an ore, concentrate or refined product. Buyer and seller assays commonly differ slightly; contracts usually set a tolerance and appoint an umpire laboratory to settle disputes beyond it.
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