Base Metals Handbook

Martin Thompson

• Publisher: Woodhead Publishing
• Year: 2006
• Print ISBN:
  9781845691547
• eBook ISBN:
  9781845691677
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

First published in looseleaf format in 1993, Base Metals Handbook has been described as the bible of the metals trading community. The looseleaf is divided into seven sections. The first of these provides a general introduction to the history, structure and workings of the base metals markets, with particular reference to the London Metal Exchange (LME). The following sections review aluminium, copper, lead, zinc, nickel and tin. Each of the sections on a particular metal reviews extraction and refining, the major markets for the metal, and the trading environment. The looseleaf includes data on mineral reserves, mines, smelters and refiners, as well as import-export flows, consumption trends and metals stocks.With its distinguished editor and team of contributors, Base Metals Handbook will continue to be a standard reference for all those involved in producing and trading base metals, including brokers, traders, analysts and investors. - A standard reference for all involved in producing and trading base metals - Divided into manageable sections, covering the market and individual metals - Discusses the London Metal Exchange

1

The base metals markets

Publisher Summary

This chapter discusses the base metal markets. It provides an overview of the development and structure of the London Metal Exchange (LME). Despite the threat posed by ill-placed warehouse locations and high charges, over which the LME authorities have so far failed to act, the market’s relationship with the base metal trade is nonetheless as good as it has ever been. There are always disadvantages and difficulties experienced when, on occasions, free market prices go through bouts of fluctuating alarmingly and even irrationally. But as has often been said in other contexts, the alternatives are without question worse. Producers in particular seem to have recognised it. It is remarkable how the aluminum and nickel producers, so horrified at seeing their cherished and relatively stable producer prices first undermined and then destroyed, have come to terms with the LME. Both are today active users of the Exchange’s contracts and regularly participate in the LME discussions and decisions that concern them. Primary producers, with few exceptions, seem at last to have a far better understanding of the free market mechanisms than was the case 25 years ago. 40 years and more back in time, there was not only widespread ignorance as to how they worked, but often implacable opposition to their very existence. Funds, speculators, especially the primary producers, but also end-users have made increasing use of the rapidly developing options market.

Outline

1.1. History and background

1.1.1. Early origins

1.1.2. Early metal trading

1.1.3. The not quite so Dark Ages

1.1.4. The Industrial Revolution

1.1.5. The merchants

1.2. The LME: development and structure

1.2.1. Development

1.2.1.1. The formation of the LME

1.2.1.2. The First World War and after

1.2.1.3. The Second World War and after

1.2.2. Price determination and control

1.2.3. The structure of the LME

1.2.4. Contracts

1.2.5. LME warehousing policy

1.2.5.1. Long Beach and Los Angeles

1.2.5.2. Warehouse charges

1.3. The current position and the future

1.3.1. Contangos and backwardations

1.3.2. Options

1.3.3. Long-term price stability – a more assured future?

1.1 History and background

1.1.1 Early origins

The non-ferrous metals are so intricately enmeshed in virtually every aspect of present-day life, in all but the remotest corners of the globe, that it would be quite impossible for civilisation, as we know it in all its various forms, to survive without them.

Modern humans as Homo sapiens have inhabited the globe for at least 300000 years, but a mere blink in geological time. The early acquaintance with metals, no doubt in the form of native gold, detected as tiny glittering nuggets in river streams, may well date back tens of thousands of years. Similarly, native copper occurring in surface outcroppings of mineralisation will also have attracted human attention (when not distracted by the pressing needs of survival).

Eventually people learnt that collected pieces of such metals could be easily hammered and fashioned, in the case of gold, into pleasing shapes and ornaments. But gold being so soft would have had no practical use for early people. Native copper, on the other hand, hardens under such hammering and working and gradually practical uses for this new material were also found. The chalcolithic (copper stone) period of human development gradually evolved.

There was no significant growth in the practical use of metals until, slowly over thousands of years, humans learnt to control fire and to generate the high temperatures necessary to smelt copper from those same exposed areas of mineralisation which until then had yielded only native copper metal. Until quite recently it was thought that the cradle of metals’ usage originated in Anatolia (modern Turkey) and Mesopotamia (much of Iraq), the home of the highly sophisticated Hittite, Sumerian and later Babylonian civilisations. But even more recent archaeological evidence has emerged, indicating that early developments in the use of native metals, and eventually smelting, seem to have occurred in a variety of locations around the world and did not necessarily spread outwards from one single source.

One place where there is no sign of early smelting is the area around Lake Superior in the USA. Here there is evidence that huge quantities of surface native copper were worked by the local peoples perhaps as long ago as 3000 bc. Even had there been any knowledge of smelting the surface deposits of naturally occurring metal were so extensive that there was perhaps no need.

One of the most remarkable discoveries of early smelting was in 1965 at Timna in present-day Israel, just north of Eilat and west of the Wadi Arabah, which marks the border with Jordan. Excavations revealed evidence of primitive copper smelting operations originally dated to around 4000 bc. More recent research indicates the site may have been used for smelting as early as the 7th millennium bc. This area was also worked by the Egyptians in the late Bronze Age between 1000 and 2000 bc and later by the Romans. Other early evidence of copper mining and smelting some 6500 years ago has been uncovered at Rudna Glava in the Balkans. This is probably one of the sources of copper used by the Vinca people of that region, who made a wide variety of copper utensils, weapons and ornaments.

A thousand years later Cyprus became a vital source of the metal which bears its name, in Greek cupros, in Latin aes cyprum. The island was occupied by many different peoples over successive thousands of years. The mines were worked steadily until the 4th century ad and finally, but briefly, again in the twentieth century. But it was the advent of the Bronze Age sometime between 4000 and 5000 years ago that rapidly promoted the manufacture and use of copper alloy artefacts and weaponry. Some of the early ‘accidental bronzes’ did not actually contain tin but antimony or arsenic no doubt derived from mixed orebodies. The true Bronze Age is, however, firmly associated with tin. Quite where the first tin came from is still a matter of conjecture. The most common source was certainly from alluvial deposits of cassiterite, the principal tin-bearing mineral, found in the streams and rivers running down from granite uplands. Tin is not a widely occurring metal. Iberia, Italy, Saxony and rather later Cornwall may have been early sources of this metal. It is also quite possible that trade may have developed in tin from as far afield as Nigeria, South-East Asia and China.

1.1.2 Early metal trading

The early history of serious metal trading almost certainly started with the Bronze Age. Demand for bronze burgeoned as soon as its remarkable properties had been recognised and developed. Today we can only speculate as to how such trade developed. But communications, in the broadest sense, were then, as now, the key.

Early overland movements of goods of all descriptions, in the Near East for example, would usually have been by pack horses, mules, donkeys and camel caravans. Such caravans and similar movements would have needed armed protection and frequently would have paid tribute or taxes at different stages on their way to their ultimate destination. For countries with access to the Black Sea or bordering the Mediterranean, small coasters would have been the preferred method of transporting goods, especially metals such as tin and copper which occupy little space and are useful also as ballast.

It is very likely that such coastal trade, rather like the inland caravans, would have resulted in goods changing ownership at many different trading centres or ports en route. Over centuries, patterns of trade will have so developed that the ultimate recipient of the metals may have had no idea as to its origins. Nor would the smelter and caster of the ingots have known the ultimate destination. Periodically, there were no doubt interruptions to supply, often through local wars or natural disasters. So trade was inevitably haphazard, unreliable and certainly risky. It is also germane to recall that, with few exceptions, the powers of the various civilisations which controlled such trade and which developed, expanded and eventually crumbled over the Bronze Age period and later, were usually centralised in a strongly hierarchical ruling elite or privileged priesthood highly dependent on toiling masses of indentured labour and supported, especially in areas such as mining, by vast armies of slaves.

Early trade would have been conducted frequently by barter but there is ample evidence of various units of gold, silver and even lead for low values being used as a form of currency, along with precious stones, which in turn could also be used for profitable barter. Dependency on copper and bronze for a wide range of utensils, tools, weaponry and ornaments began gradually, from about 1500 bc onwards, to give way to the use of iron. The smelting of iron may have first been developed in Anatolia, possibly by the Hittites. It was certainly put to devastating effect by the warlike Assyrians who in turn gave way, after the ebb and flow of numerous battles, to the Babylonians. They were probably among the first to develop more sophisticated trading methods involving letters of credit and interest rate calculations. But the rise of the use of iron, as smithing and tempering skills improved, was increasingly in the forefront of new developments, especially in weaponry and tools. Usage of both copper and lead continued to flourish under the Romans, especially for roofing and pipes and various utensils. The more expensive bronze gradually fell out of favour but continued to be used for bell-making and other decorative rather than practical purposes.

1.1.3 The not quite so Dark Ages

Compared with the use of iron and early forms of steel, the principal non-ferrous metals tended to languish. Growth slowed. Leaping through the centuries, the collapse first of the incredibly long-lived Egyptian empire and the later retreat and fall of the Roman Empire led to the so-called Dark Ages. More than a thousand years were to elapse after the withdrawal of the Romans from Northern and Western Europe, including Britain, before non-ferrous metals were to regain some of the importance they had enjoyed during the Bronze Age.

The centuries after the retreat of the Romans were not quite so dark as is often supposed and certainly not destitute of developments in mining. Among the Saxons there were mining specialists well versed in smelting and metal production and already exploiting deposits in their home and neighbouring territories. They brought their techniques to England during this period and redeveloped the tin and copper mines of Cornwall and Devon, and the lead mines of Derbyshire and along the Pennines. These had all been more or less abandoned after the retreat of the Romans. The old trading routes were gradually reopened, with tin and lead the principal products.

But, until the beginning of the nineteenth century, the production of base metals across Europe was on a small and localised scale. Most deposits originally had surface manifestations, usually known to have been worked in Roman times and in some cases far earlier. Indeed the Romans themselves do not seem to have been prospectors. They seem rather to have been efficient exploiters and developers of already existing small-scale mining operations.

A major problem in many mines was water and flooding of the workings. The Romans developed quite sophisticated methods of dealing with this and archaeological evidence of their ingenuity has survived to this day. But there were few situations where such methods were practicable. Indeed the Saxons in Germany used methods similar to those of the Romans until quite late in the nineteenth century. One of the most remarkable medieval scientific treatises, De Re Metallica by Georgius Agricola (the father of mineralogy), published in 1556 shortly after his death, describes several early methods of pumping out water; accompanying and fascinating woodcuts illustrate combinations of waterpower, hand-operated windlasses and treadmills turned by men and even goats.

1.1.4 The Industrial Revolution

These practical but primitive methods of draining mines and thus allowing deeper workings did not begin to be superseded until 1712 when Thomas Newcomen, an ironmonger from Devon, designed and built the first so-called ‘beam engine’, effectively powered by steam, for pumping water out of mines. These engines were soon brought into operation throughout Britain and Europe. Mining was now possible on a far wider scale, especially for coal. A few years earlier, in 1709, Abraham Darby had already successfully experimented with coal’s derivative coke for the smelting of iron and had brought down the costs dramatically.

James Watt some 50 years later famously set about improving Newcomen’s remarkable engine and in 1769 he and Matthew Boulton patented the world’s first true steam engine. There followed a succession of ingenious and practical industrial developments. By the end of the eighteenth century the Industrial Revolution was well underway with Britain leading the world.

Steam power rapidly transformed all aspects of British ‘...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• Editor’s introduction
• The contributors
• Sources of data
• Chapter 1: The base metals markets
• Chapter 2: Aluminium
• Chapter 3: Copper
• Chapter 4: Lead
• Chapter 5: Zinc
• Chapter 6: Nickel
• Chapter 7: Tin
• Index