London Metal Exchange

The LME is the world’s largest metal exchange.
Commodity futures transaction with different (precious) metals are handled every day in a big way.
The history of LME goes back into 1877.
Initially only copper, one of the most sought-after industrial materials, was traded.
Gradually they expanded their range of offer and started transactions with lead and zinc.
Since the late 1970´s, aluminum and nickel were included officially in the market

• Since 2000 LME has completed his offer and so, since then there is the possibility to purchase or sell various other base metals there.
• To date, LME has de facto the monopoly in what regards the whole industry metal trade. Only copper can still be bought on NYMEX (New York Mercantile Exchange).
• The estimated trade volume of the company LME is around 2.000 billion dollars per year.

Its proprietors are:
UBS (CH) -  Goldman Sachs (USA) -  the British metal trading company Metdist (UK) - MF Global (UK) - JPMorgan Chase(USA) and Sucden Financial (UK).

• LME has 778 privately owned warehouses (75% of which are owned by just five companies) that stockpile metals traded on the LME.
• Since 2010, warehouse owners have been building huge warehouses that aren’t governed by LME rules. According to a Wall Street Journal article, they are storing hundreds of millions of tons of metals – like aluminum, copper, nickel, and zinc – in these “shadow warehouses,” as opposed to in LME-sanctioned warehouses.

By keeping the true levels of stockpiles from the public metals miners, financiers of metal stockpiles and warehouse owners (some giant banks and behemoth metals mining and trading corporations, like Glencore Xstrata Plc.) can profit from information others don’t have.

By casting stockpiles into the shadows and reducing transparency, manipulators can increase volatility, which of course is the essence of trading profitability.

1. If metals are taken out of the market, removed from the numbers that are counted that determine prices in a supposedly free market price discovery exchange, prices will go up.

2. Futures market. That’s what they trade at the LME, futures on these metals. If the price of metals is expected to rise, futures prices for those metals will rise too.

When you go out on a “term basis” (in time) in the futures market and prices of further and further out delivery months are progressively higher and higher the more distant the futures expiration date, that’s called “contango.”

Metals futures prices are in contango for this reason. If you bought metals today that you needed to store, and you had the option of not buying and storing the metal today but buying the same amount via a futures contract for delivery to you in six months, the person selling you the futures contract might be the owner of the metal today, and he’s being charged for storage. So he will charge you a higher price for the futures contract to make things even. That’s part of what causes contango.

If somebody owns metals, and stores them in shadow warehouses, and the true amount of that metal in all warehouses isn’t known, but it’s believed to be less than there is (because he is hiding his), the price today will be higher. And since he is charging a lot to other metals stockpilers in his LME warehouses and delaying delivery to collect more rent, which also raises the price of the metal today and therefore raises the futures prices across all delivery months, with the further out being more expensive… He can sell (short) long-dated futures contracts that he has artificially helped manipulate higher to finance his storage of the same metals in all his warehouses. That reduces his cost and increases his profit.

By manipulating stockpiles, smart operators can make money lots of ways.

Another way is by trading the volatility they create in the pricing structure. After all, they are manipulating the prices. If they want to dump stockpiles and trounce prices they will short the overpriced futures to profit from falling prices they force down? If you short enough, and the price of what you have stockpiled goes down, you will make more on your futures short.

And then they will buy more physical stock and futures at the bottom of the panic-selloff and profit from the price rise too.

What we have here is the freely manipulated market owned by giant banks and corporations freely manipulating everything they can because of their massive size and because they own the means of production, storage, pricing, and the officers of the armies that protect their wealth.