Newsworthy

Metals, Trading

LME announces trading process changes

The London Metal Exchange (LME) and LME Clear, which together comprise the LME Group, have announced a new two-year program designed to strengthen and enhance the markets of the metals traded via the two platforms.

The action plan will address recommendations put forward in the Oliver Wyman report, issued following events in the nickel market last year.

As recommended in the report, daily price movement limits have been made permanent, with indicative revised limits of 12 percent for copper and aluminum, the LME says. Nickel pricing on the LME has been subject to a 15 percent limit on daily price volatility since the metal resumed trading in late March 2022.

The volatility involved organizations, some of which are based in China, with positions. That could be one reason why LME says it is developing a China-based Class II nickel spot market offering in cooperation with the Qianhai Mercantile Exchange (QME). The LME and QME are owned by Hong Kong Exchanges and Clearings Ltd.

“The actions we have taken since March 2022 and those we have set out in today’s announcement are vital in building confidence in LME nickel and to ensuring the long-term health and efficiency of LME markets more broadly,” CEO Matthew Chamberlain says.

James Cressy of LME Clear adds, “In addition to laying out plans to support LME Clear resilience, we are also today reconfirming our commitment to evolving the group’s market structure, which we continue to believe is key to ensuring we remain responsive to emerging risks and customer needs. Prioritizing transparency and maximizing trading and clearing efficiencies are crucial in driving greater liquidity for the benefit of the market as a whole.”

Regarding the price volatility limits, LME says its User Committee “has undertaken a detailed study to provide a granular per-metal calibration” of the limits and adds that it intends to implement this methodology by the end of this year’s second quarter.

LME also says it is “committed to rebuilding liquidity in LME nickel” and, alongside reopening Asian hours nickel trading in early April, it has introduced “a fast-track listing approach and fee waiver for new LME nickel brands—without relaxing the LME’s metallurgical or responsible sourcing standards—with the aim of bringing more stock and liquidity to the contract.”

Another LME method to increase the amount of Class I nickel material eligible for delivery involves broadening its nickel contract to include coarse nickel powder (which is favored in battery production as it can be readily converted into nickel sulfate). LME says it will finalize its position on that matter following an LME Nickel Committee meeting in April.

“Many of the measures included in the action plan will first require consultation prior to implementation,” the exchange states. “The first such consultation is planned for publication during May 2023 and will put forward proposals to make permanent the temporary measures introduced in 2022 to address the current low-stock environment and will also propose the introduction of monthly reporting of eligible stock (non-LME warranted metal in LME-licensed warehouses).”

Additionally, LME says it will put an immediate focus on continuing to evolve the Closing Price process into a more deterministic and industry-standard methodology and will rely on input from the LME User Committee to do so.

Another change LME says it will continue to assess involves whether a transition to a realized variation margin (RVM) model in the medium term would be appropriate. The LME has long used a contingent variation model (CVM) for settling trades.

When the idea to switch to RVM was approached in 2021, several recycled metals traders, including Germany’s Verband Deutscher Metallhändler, expressed concern that it would be harmful to small-to-medium traders of physical shipments.

Metals, Mergers & Acquisitions

Sims Metal buys Northeast Metal Traders

Sims Metal, headquartered in Rye, New York, has acquired the commercial and operating assets of Northeast Metal Traders, a Pennsylvania-based nonferrous scrap metal wholesaler and broker.

Northeast Metal Traders operates a single-scale site in Philadelphia and has extensive supplier and end-consumer relationships across the eastern United States. The company was founded in 1993 by Mitchell Goldberg, Elliott Goldberg and Ron Greller and purchases and processes large volumes of all grades of nonferrous scrap metal and exports materials to customers around the world.

Northeast Metal Traders is one of the largest copper recyclers in the U.S., processing and selling about 60,000 tons of nonferrous metal per year.

Sims tells Recycling Today that Mitchell Goldberg, along with all other Northeast Metal Traders employees, will remain with Sims.

“The trading team and commercial team at Northeast Metal Traders are terrific,” says Steve Skurnac, chief development officer at Sims Ltd. “We’re increasing the number of people and professionalism on our copper trading team, so that’s a bonus for us.”

According to Sims, the acquisition will substantially increase the copper volumes in its metals business, as Northeast Metal Traders focuses predominantly on high-quality copper granulation. With demand for copper scrap growing, Sims says it will strengthen its exposure to the energy transition and decarbonization trends as well.

Mitchell Goldberg says Sims approached him and his team about acquiring Northeast Metal Traders a year and a half ago.

“We thought it would be a great way to continue to grow Northeast Metal Traders,” Goldberg says. “It enhances our opportunity to grow the nonferrous business with their help and locations around the globe and educated people around the world.”

According to Sims, the transaction consideration implies an enterprise value/earnings before interest, taxes, depreciation and amortization multiple of 4.8 on a presynergies basis, including estimated working capital. The company says it plans to fund the acquisition using recycling surplus and underperforming capital.

Sims says the acquisition is in line with its growth strategy, which includes expanding its nonferrous business in North America and the allocation of growth capital expenditure toward assets that yield a minimum 15 percent posttax internal rate of return.

“We are very excited about this bolt-on acquisition and the opportunities it opens up for the Sims Metal North America business,” says Alistair Field, managing director and CEO of Sims Ltd. “The Northeast brings commercial and operating synergies as well as provides us with a significant and complementary footprint in Philadelphia.”