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Commodities derivatives trading surges in London - IFSL

17 July 2006  |  2018 views  |  0 Source: International Financial Serivces London

Commodities derivatives have seen an upturn in the volume of trading in recent years according to a new IFSL report - Commodities Trading.

Global physical and derivative trading of commodities on exchanges increased 44% in 2005 and more than doubled over the past four years to reach 878 million contracts in 2005. The OTC derivatives market has also seen strong growth in volumes worldwide. The notional value outstanding of banks' OTC commodities' derivatives contracts more than doubled over the past year to a record $3,608bn at end-2005, largely due to an increase in OTC traded energy contracts.

London has benefitted from the increase in trading due to its position as the largest global centre for commodities trading after New York. The three major commodities derivatives exchanges located there accounted for 15% of global commodities' exchange trading in 2005:

Euronext.liffe is Europe's biggest exchange for "soft commodities" with 8.5 million contracts traded in 2005

London Metal Exchange is the leading global exchange for non-ferrous metals with a 90% share of global trading. Turnover on LME totalled a record 78.6m contracts in 2005.

ICE Futures is Europe's biggest exchange for energy products. Turnover grew for the eighth consecutive year in 2005 to reach 42m contracts.

London also accounts for 14% of the notional value outstanding of banks' OTC commodities derivatives contracts. The bulk of global OTC trading in precious metals is conducted in London through the London Bullion Market association.

There has been a sharp upward trend in prices of many commodities since 1999. This was partly due to growing demand for raw materials in emerging markets such as China and India, rising interest from investors and limited supply of some commodities. The increase in prices has attracted many investors to the commodities sector including short-term speculators such as hedge funds and more recently longer term institutional investors looking to diversify their portfolios.

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