LONDON, Oct 10 (Reuters) - Crisis? What crisis? It's

hard to believe that just over three years ago the London Metal

Exchange (LME) was teetering on the brink of a death spiral

after its nickel contract blew up.

Yet as the global metals industry descends on London for the

annual LME Week festivities starting on Monday, the 148-year-old

exchange, owned by Hong Kong Exchanges and Clearing ( HKXCF ),

appears in robust good health.

Trading volumes are up, with nickel itself back to

pre-crisis activity levels. New LME warehouses have opened for

business in the Saudi Arabian port of Jeddah and Hong Kong.

Even the exchange's open-outcry trading ring continues to

defy expectations of inevitable demise with U.S. broker Clear

Street joining the hallowed red-leather circle.

The tumultuous events of March 2022 still cast a long shadow

in the form of the exchange's ongoing reform programme and

tougher enforcement policies.

But the LME is being buoyed by turbulence in physical metal

supply chains, not least this year's special guest in London -

Doctor Copper.

MUST DO BETTER

The Financial Conduct Authority (FCA) drew a line under the

nickel crisis earlier this year with a hefty fine on the LME,

reduced for co-operating with the UK regulator, and a detailed,

at times scathing, analysis of what went wrong.

Were it a school report, it would have ended with the words

"must do better".

The exchange, to be fair, has been trying, pushing through a

market restructuring programme in the face of predictable

hostility from many of its members.

After much pushing and shoving, the LME will go ahead and

introduce block trade thresholds to direct more liquidity to its

electronic platform. But it's had to concede greater latitude

for inter-office trading on the front part of the curve to

appease its industrial base.

An attempt to extend block-trade rules into the

over-the-counter (OTC) segment of the market was dropped after

strong resistance from both members and futures industry

associations.

The LME's response is a hike in the fee charged for

"lookalike" contracts, a popular instrument in the OTC market.

Likely less controversial is the exchange's proposal to

shift its options contracts from inter-office to electronic

trading.

The London metals options market is underdeveloped relative

to peer exchanges.

The Shanghai Futures Exchange (ShFE) only introduced options

trading in 2018 but now has liquid contracts across the full

spectrum of its metals suite, including even the new aluminium

alloy contract. U.S. exchange CME, meanwhile, has

expanded its copper options offering with weekly contracts.

The LME's timeline for going electronic is extended but the

ambition gets a vote of confidence from Dutch options trader

Optiver, which has just become a non-clearing member.

MORE MUSCLE

The LME, no doubt under the watchful eye of the FCA, has

toughened up its handling of over-size positions by extending

its lending rules beyond the cash date to the nearest monthly

prompt.

The rules require an entity with a dominant long position to

lend at a capped rate, diluting the potential for a market

corner.

When it announced the change in June, the LME revealed it

had already "at times" directed "market participants to take a

number of actions to reduce large on-exchange positions relative

to prevailing stock levels."

The new lending rules were presented as a response to low

exchange stocks, particularly those of aluminium and copper,

markets in which physical supply chains have been distorted by

sanctions on Russian metal and the U.S. tariff trade

respectively.

However, they also come against the backdrop of a rolling

squeeze that has gripped the aluminium contract since May. Even

the FCA wants to know why Swiss trader Mercuria is holding so

much metal.

That particular stand-off notwithstanding, it's clear that

the exchange is taking a more active and robust role in trying

to manage its unruly markets.

THANK YOU MR PRESIDENT

Rising volumes are good news for LME executive and

membership alike. Average daily volumes jumped by 18% last year

and were up another 3% in the first nine months of this year.

The LME will naturally present this as an endorsement of its

reform campaign but the exchange has also reaped the reward of

turmoil in physical metal supply chains.

U.S. President Donald Trump's threat, subsequently deferred,

to impose an import duty on refined copper triggered a tectonic

shift of global inventory to the United States.

This turned out to be good news for the LME with its

international and industrial user base and less good news for

the more fund-driven CME contract. LME copper futures and

options volumes rose by 2.4% year-on-year through September,

while CME activity contracted by 39% over the same period.

Meanwhile, oversupply in the lead and nickel markets has

washed into the LME warehouses, lifting exchange stocks to

multi-year highs and boosting financing activity on the LME

contracts.

Even the LME's long-dormant cobalt contract has got a new

lease of life, notching up record activity on the back of 1,755

tons of metal making its way into the LME warehouse system.

But the special guest at this year's LME Week will be Doctor

Copper, who's had a topsy-turvy time so far in 2025 but is back

in full bull mode.

The LME 3-month copper price this week hit the

$11,000 per metric ton level, moving it within striking distance

of its all-time peak of $11,104.50, set in May 2024.

When Doctor Copper's in that sort of mood, it probably means

it's going to be a proper LME Week party. Let's just hope it's

not too bad a hangover.

The opinions expressed here are those of the author, a

columnist for Reuters.

(Editing by Susan Fenton)