LME looks into sustainable metal pricing

The London Metal Exchange (LME) has started to explore the potential for producing sustainable metal price premiums for LME-approved brands that meet the low-carbon footprint requirements of nonferrous metal certification bodies.

The trading contract and warehousing services provider says it is currently engaging closely with physical market stakeholders on its proposals for four key LME metals, which the exchange has identified as aluminum, copper, nickel and zinc.

“By making a sustainability price differential public, the value attached to sustainable metals will be transparent and could support the development of the market for sustainable metals,” the LME says.

Recycled-content metals are among those poised to be affected by such a system. In addition to alternative (nonfossil fuel) energy sources, using recycled metal in the production of new ingots or billet is a common way to make low-carbon-footprint metal.

“Our conversations with stakeholders have shown that there is support for establishing a way to reflect an LME brand’s sustainability in its price,” says Matthew Chamberlain, CEO of the LME.

“There is a growing sophistication in industry sustainability standards and accreditation programs that cover broad criteria for different metals markets. Taken together with the disclosure and comparability of these credentials through LMEpassport and our work with [Germany-based software provider] Metalshub, these developments provide the opportunity to establish credible sustainability pricing premia for LME-listed metals.

“We are setting out proposals that we believe will support the formation of sustainable premia that will be accessible to the whole market. They will unlock the value attached to sustainability and have the potential to drive the development of the market for more sustainable metals. Furthermore, the greater resilience exhibited by sustainable supply chains provides an important linkage to the global critical minerals agenda.”

The LME's partnership with Metalshub was launched last year to develop a price discovery mechanism for low-carbon nickel. The platform enables consumers to buy LME-grade low-carbon nickel (using an LME-prescribed carbon threshold assessed using the Nickel Institute methodology), and since March last year, Metalshub has reported the monthly volumes transacted through the platform.

The current exploratory process could lead to the launch of a broader series of sustainable metal premiums for LME-branded aluminum, copper, nickel and zinc.

In addition to working with the Toronto-based Nickel Institute to adopt methodologies, LME says the Australia-based Aluminium Stewardship Initiative, the New York-based International Copper Association and the North Carolina-based International Zinc Association would be involved.

The LME is considering establishing a pricing administrator whose role would be to use trading data and “apply expert judgement to publish prices.”

“The administrator would set the rules, policies and process for the sustainability premia and market participants would be able to engage with the administrator to raise issues or provide additional data," the LME says.

“By integrating sustainability data into trading processes, we enable participants to make informed decisions, ensuring that responsible metals receive fair market valuation," Metalshub co-founder and Managing Director Frank Jackel says. "Providing the technological foundation for price discovery will help to drive the industry towards a greener and more responsible future."

The LME says it is discussing its sustainability- and recycling-related proposals with a range of physical market stakeholders and will provide further progress updates when possible.

“We welcome the LME's proposal as a much-needed move to enable the proper pricing of low-carbon, sustainable products,” says Nick Stansbury of $1 trillion London-based asset management firm Legal & General Investment Management (Holdings) Ltd.

“We believe transparent pricing of sustainable materials is critical to incentivizing investment into transition technologies in the mining industry and we look forward to the outcome of this market engagement process."