They are ready to have constructive discussions, said Thierry Centner, chairman of the International Wrought Copper Council, in Shanghai. Consumers want to look at how the LME functions in terms of hedging, price discovery and the physical market, said Simon Payton, the councils secretary general.
Copper prices have more than doubled over the past year in London amid a broad rally in commodity prices. The surge has been driven by concern that rising demand, especially in China, is outstripping supply for the metal used in wires and pipes. Hedge and pension funds have been targeting copper and other commodities, seeking better returns than from stocks and bonds.
High commodity prices mean consumers are beginning to feel the impact on margins and they are publicly pressuring regulatory authorities to try and intervene, according to Peter Richardson, chief metals economist at Deutsche Bank AG.
Prices are very bad, very difficult, Mr Centner said in an interview on Wednesday. The financing aspect, the working capital issue, is becoming a nightmare. In general the copper business is built on credit.
About 85% of total turnover on the LME may be derived from funds rather than from normal industry business,said Mr Centner, who is also vice-president for copper products at Cumerio, a producer spun off by Belgian company Umicore SA.
Prices of the metal have increased more than four-fold in the past five years and reached an all-time high of $8,800 a tonne on May 11 in London. The Standard & Poors 500 Index is little changed over the same period. Copper consumers expressed their concern to the LME over the role of speculators in the price rally at a meeting in April.
We got a weak or soft answer, said Mr Centner. They showed some sympathy, but they said its difficult to change the rules because its a free market and they cant forbid funds access to the market.
Anna Campopiano, director of corporate affairs for the LME, said the role of the exchange is to maintain a market in which prices are discovered in an orderly and transparent way.
Our practices, processes and committee structures serve to maintain a dialogue with all users of the market, Ms Campopiano said by telephone from London on Thursday. We see this as important and valuable and intend to continue to do this.
Mr Centner and Mr Payton were in Shanghai this week for a meeting of the IWCC. Mr Payton said the council agreed to come up with concrete proposals to present to the LME.
The industry is broadly happy to use the LME as the reference price for copper as long as it has a relevance to the industry, Mr Payton said. Much of the worlds trading in copper, zinc and aluminum is priced using the LME as a basis.