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LME positions metals as cornerstone of sustainability

New products proposed by LME include a spot trading platform for low carbon aluminum and a register for producers to log their metal's carbon-related details

23 September 2020

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The London Metal Exchange plans to launch a series of new products and contracts over the coming months as it positions “metals as the cornerstone of sustainability” in future economic activity.

Speaking on a webinar on Sept. 22 on "Introducing LME Sustainability", Matthew Chamberlain, chief executive of the exchange, said LME is building on the work it has already undertaken in embedding responsible sourcing standards into its brand listing requirements.

Under its existing rules, metal producers operating in conflict zones or high-risk areas need to meet international guidelines on responsible sourcing or face being delisted from the exchange. Responsible sourcing came into focus after it emerged in 2017 that some of the cobalt, a key material in the batteries of smartphones and electric vehicles, traded on the LME could have been mined by children in the Democratic Republic of Congo. 

"What really changed for us was this concern around cobalt supply chains, which has since moved out to other metals. Because LME trades cobalt, there were, rightly, questions asked by stakeholders about LME's position on supply chains," Chamberlain said.

"LME quickly came to realise is that it has the capability to influence debate beyond what the size of our core business would suggest," he said. "We're moving in the right direction, but it doesn't stop there. There are many other elements of sustainability, particularly on environmental, where we are planning to take more action."

LME already offers pricing and access to metals that contribute to sustainable production, the circular economy and electric vehicles, but says the next step is to build on this by increasing transparency and providing access to a broader range of products and services.

The new products proposed by LME include contracts to support recycled, scrap and electric vehicle industries, a spot trading platform for low carbon aluminum, and a register where producers can voluntarily log their metal's carbon-related details.

The proposals have been laid out in a discussion paper, which is open for feedback until Thursday, Sept. 24.

Key to the proposals is LMEpassport, a digital document register that will record electronic Certificates of Analysis and other value-add information including, on a voluntary basis, carbon-related metrics for specific batches of aluminium. Interested producers or metal owners can choose to input data related to their metal, representing the first step towards an LME-sponsored market-wide “green aluminium” labelling programme.

The exchange says it will eventually look at other metals but proposes to start with aluminium where power is a major component in the smelting process. Although energy intensive, aluminium is vital for the transition to a lower carbon economy and is valued, particularly in the auto sector, for being lighter than steel and much more recyclable.

"LMEpassport will be available for use by the market, warehouse companies, LME members and metal owners who will be able to upload data to it. It will be the first step in really providing centralised transparency across a broad range of characteristics," Georgina Hallett, LME's chief sustainability officer, said on the webinar.

"Our intention is not to set a threshold for inclusion. You don't have to achieve X tonnes of CO2 equivalent per tonne of aluminum produced, for example," she added. "The benefit of our approach is that it means we don't have to focus on one characteristic. Emissions data is obviously an easy one to pick at the moment, given the level of discussion on that topic, but we can also include information on recycled content, the use of carbon offsets and membership of an industry scheme."

In addition, LME plans to launch a spot trading platform to provide price discovery and trading of sustainably sourced metal, again starting with low carbon aluminium. The online auction-style platform will deliver access on a voluntary basis to those market users who would like to buy or sell the product.

Other steps towards LME's green future include several new products targeted at the recycling sector, with new scrap contracts for the Taiwanese and Indian markets slated for launch in the first half of 2021, and an aluminium scrap contract to service the North American used-beverage can recycling industry. A pending lithium contract, aimed directly at the electric vehicle space, will launch at the same time.

LME Sustainability
LME's sustainability proposals. Source: LME

Supply Chain

With its proposals, the 143-year old exchange is placing itself at the heart of the metals sustainability debate by offering itself not only as a trading forum but as a supply-chain information hub.

Highlighting LME's approach and plans on the webinar, Hallett said LME holds a unique position in the metals market, being right in the center, which gives it "an outsized role in terms of facilitating change."

"Our knowledge of the metals value chain gives us a good perspective and a position from which we can provide a route forward that genuinely helps promote change but is also practical and achievable," she said. "All of this is designed to reinforce the role of metals. Metals are unique and are crucial for the technologies that underpin a sustainable future."

Feedback analysis of the responses to LME's discussion paper will take place in the fourth quarter this year, with LMEpassport go-live and the launch of the spot trading platform – subject to market feedback – slated for the first half of next year, Hallett said.

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