LME to Suspend All Non-US Dollar Metal Options Trading, Mandating Greenback as Sole Currency

On 3 November, London Metal Exchange (LME) announced on Friday that it will suspend all trading of metal options contracts not denominated in US dollars, effective 10 November.

The exchange cited prolonged low trading volumes in these non-dollar contracts, stating that maintenance costs have now exceeded revenues. It described the move as a market-driven optimisation measure.

As the world's largest centre for trading industrial metals, this decision means that all base metal contracts traded on the LME-including copper, aluminium, zinc, nickel, and lead-will now be priced and settled exclusively in US dollars. The regulation removes the eligibility of other currencies for trading on the platform, leading to the suspension of contracts denominated in major currencies such as the euro, pound sterling, and renminbi.

Accelerating Renminbi Internationalisation

The move is seen by some analysts as more than a routine market adjustment, reflecting broader financial tensions as the internationalisation of the renminbi poses a direct challenge to US dollar hegemony.

Given that nearly 70% of global metal trading benchmarks reference LME prices, the mandate is anticipated to significantly impact market participants who rely on non-dollar currencies for trade and risk hedging.

Data appears to challenge the LME's characterisation of 'stagnant non-dollar trading'. Using the renminbi as an example, its usage in metals trading has reportedly nearly tripled over the past few years. Approximately 38% of long-term metals contracts in the Middle East and 32% in Africa have already shifted to renminbi pricing and settlement, making the assertion of effectively 'no trading volume' seem untenable to some observers.

Despite the LME's suspension, renminbi usage in metals trading continues elsewhere. Resource-rich nations, including those in the Middle East and Russia, are increasingly adopting the Chinese currency for metal settlements. This has fostered a closed-loop system where 'oil is sold for renminbi → metals are purchased using renminbi'.

Furthermore, trading in copper futures and other commodities on the Shanghai Futures Exchange remains robust, with the renminbi's pricing influence steadily growing.

Impact and Market Reshaping

Analysts suggest the LME's ban will cause short-term market disruption, creating direct trading obstacles for all metal enterprises that use non-US dollar currencies for hedging. Medium to long-term consequences could include a reshaping of global metal trade pricing systems and settlement practices.

Post-implementation, the most immediate impact will be a redistribution of transaction costs. Companies accustomed to trading in their domestic currencies will now be required to bear additional exchange costs and currency risk. This is particularly significant against the current backdrop of heightened global exchange rate volatility, as the new regulation adds a layer of complexity to corporate risk management.

The LME's decision is interpreted by some as a signal of a significant shift within the international monetary system. It reflects both the determination of the US dollar system to maintain its dominant status and the profound adjustments currently underway in the international financial order.

Looking ahead, the financial landscape may witness the emergence of more regional trading platforms, with intensified competition for pricing authority across specific commodity sectors among different currencies.

While this transformative process is expected to entail growing pains, it may also propel the global financial system towards greater diversification and enhanced resilience. For market participants, the ability to proactively adapt to these changes and strengthen risk management capabilities will be crucial to seizing new opportunities in a reshaped market.