Collateralisation

In times of market surplus, or with a stranded parcel of billet, a merchant or producer can, via an LME member firm, deliver steel billet into an LME registered warehouse and will after warranting, within two days, receive an equivalent cash value on the basis of the price as determined through trading on the LME.

Alternatively, the merchant or producer is able to finance his billet stock by delivering into an LME registered warehouse, via the LME member firm. On delivery an LME warrant is generated for each lot (a lot is equivalent to 65 metric tonnes).

An LME warrant is a bearer document of title, globally recognised in the financial world as a completely reliable, robust and secure document which finance banks are consequently able to use as the basis for collateralised lending.

	“For marginal-profit/second-tier steel producers looking for pre-production finance the ability to mitigate price risk by the use of hedging mechanisms should certainly increase the producers’ availability of funds by monetising the value of their sales.” Georgie Baker, Director for Base Metals Finance, Standard Bank