Copper margin quadrupled

In two weeks Clearnet has quadrupled the margin requirement to trade copper at the LME; no wonder commodities are acting giddily…


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Source: KITCO

Thursday May 12, when copper, nickel, zinc and aluminium were hitting
record highs, the clearing house stepped into the market to ask LME
members to make extra margin payments on their holdings.


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Source: KITCO

LCH.Clearnet
said it had raised the copper margin to $25,000 a lot – the equivalent
of 25 tonnes of copper – from $14,575, which in turn was raised from
$6,250 just two weeks ago. The margin call on zinc has risen to $12,500
a 25-tonne lot from $9,200 overnight, the second hike in less than a
month. It said margins on nickel prices have risen to $11,400 a
six-tonne lot, from $9,186 previously.

FT’s account follows:

Second cost spike for metals traders
By Kevin Morrison
Published: May 16 2006 20:25 | Last updated: May 16 2006 20:25

The
cost of trading on the London Metal Exchange, the world’s largest base
metals market, has been raised for the second time in two weeks in
response to increased risks from commodity price volatility.

LCH.Clearnet,
the clearing house for the LME, has raised the amount bourse members
have to deposit with it to cover any potential losses on a trade.

The
move comes at a time when speculative interest in base metal markets
have risen sharply. The rise in the so-called “margin” will act to damp
speculative activity. Higher prices and increased intra-day volatility
in base metals has prompted LCH.Clearnet to become more vigilant in
monitoring the metals markets. Last Thursday, when copper, nickel, zinc
and aluminium were hitting record highs, the clearing house stepped
into the market to ask LME members to make extra margin payments on
their holdings.

LCH.Clearnet said it had raised the copper margin
to $25,000 a lot – the equivalent of 25 tonnes of copper – from
$14,575, which in turn was raised from $6,250 just two weeks ago. The
margin call on zinc has risen to $12,500 a 25-tonne lot from $9,200
overnight, the second hike in less than a month. It said margins on
nickel prices have risen to $11,400 a six-tonne lot, from $9,186
previously.

The previous margin call rise was followed by rumours
that some clients of LME member firms were unable to meet the tighter
margin requirements. However, Michael March, director of corporate
communications at LCH.Clearnet, said there was no defaults.

“We have had no problems collecting margin deposits from members,” he said.

Margin
calls are funds placed in a bank account with LCH.Clearnet by each LME
member firm. The deposit is to cover any potential losses on a trade
and mitigates against the risk borne by the clearing house, which
operates as counterparty to both sides of a trade.

Meanwhile,
LME has appointed Platts, the energy and commodity information
provider, to develop reference prices for a possible steel futures
contract. The LME hopes that a new steel reference price will be
established by the end of the year. If it is adopted by the industry,
the LME would look to launch a steel futures contract some time next
year.

Steel, which is a $500bn a year industry, is the largest
commodity market still dominated by producer pricing, but has no
successful futures contract.