The Unique World of Trading Metals on the LME

With Campbell & Company’s Cheryl Scungio and LME CEO Matt Chamberlain

Hamlin Lovell

Founded in 1972, systematic multi-strat manager, Campbell & Company, has been trading a selection of base metals (copper, aluminum, zinc and nickel) on the London Metal Exchange (LME) since April 1998, as a subset of a larger grouping of commodities. “We see a lot of opportunities in terms of moves in markets, how the models respond, and adjust accordingly,” says Campbell & Company’s Executive Director, Trading Lead, Cheryl Scungio, who was featured in The Hedge Fund Journal’s 2018 edition of ‘50 Leading Women in Hedge Funds’, in association with EY.

The LME currently has some female clerks, but no female traders and has historically had only two. The first came in the 1970s: Geraldine Bridgewater, whose autobiography, Ring of Truth, discusses the stresses and pressures of her career. The second was Bethan Wilde, who was a trader between 2007 and 2013, and now works at the LME as a relationship manager. There is a perception that the noisy, shouty ring trading environment may deter some women, though the bulk of LME trading volumes are now executed electronically or by telephone.

Over the course of Scungio’s 18-year career at Campbell, the LME has gone through a number of milestones, including: reforms to warehousing; the Hong Kong Exchange takeover; new fee structures; more electronic trading; clearing; EMIR; MiFID II, and the launch of new markets, with changes to margining expected over the next year.

Warehousing fiascoes and reforms

The warehousing structure is one of the unique features of the LME. Warehouses are not owned by the LME but are a key part of its ecosystem. Though fewer than 1% of LME volumes are physically settled – and Campbell has, thankfully, never taken nor provided physical delivery – LME-approved warehouses are involved in settling LME contracts via delivery of a warrant. Inventory backed by warrants has met quality and other standards and can therefore be traded as a future. 

For decades, the system operated without issues, but it became dysfunctional around and after the great financial crisis of 2008. After Lehman Brothers collapsed, the economic slowdown reduced industrial demand for base metals, which multiplied volumes of inventory. Aluminium was acutely hit as a collapse in demand for autos and airplanes interacted with persistently high supply, due to the high costs of mothballing production. Incentives to store metal with the warehouses exacerbated the glut. “For instance, the quantum flowing into the Detroit metropolitan warehouse mushroomed from 50,000 tonnes at the start of 2008 to 847,000 tonnes by the end of 2009,” recalls Scungio. 

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