UK exchanges benefit from record trading in commodity derivatives in 2010

8 March 2011

• Exchange trading of commodities up a fifth in 2010 to 2.5 billion contracts
• Commodities exchanges in the UK generate 15% of global trading in 2010
• Outstanding value of OTC commodities derivatives down nearly two thirds since 2008
• Gold and silver post record turnover in 2010, $25.1 trillion and $3.2 trillion respectively.
• OTC markets in London generate around two-thirds of gold and 40% of silver trading.

The global volume of commodities contracts traded on exchanges increased by a fifth in 2010, and a half since 2008, to around 2.5 billion million contracts. TheCityUK's Commodities Trading 2011 report notes that during the three years up to the end of 2010, global physical exports of commodities fell by 2%, while the outstanding value of OTC commodities derivatives declined by two-thirds as investors reduced risk following a five-fold increase in value outstanding in the previous three years.

London has benefitted from growth in exchange trading due to its position as the largest global centre for commodities derivatives trading after New York. The major exchanges located there accounted for around 15% of global exchange trading in commodities during 2010:

• NYSE.Liffe is Europe's biggest exchange for 'soft commodities' with 16.7 million contracts traded in 2010
• London Metal Exchange is the leading global exchange for non-ferrous metals with a 90% share of global trading and record turnover in 2010 of 120.3 million contracts
• ICE Futures Europe is the biggest exchange for energy products in Europe. Turnover grew for the twelfth consecutive year in 2010 to reach 217.2 million contracts

Marko Maslakovic, Senior Manager, Economic Research at TheCityUK said: "Commodities funds under management more than doubled to $380bn between 2008 and 2010, largely due to a strong increase in investments in exchange-traded commodities products. The growing attraction of commodities as an asset class resulted in proliferation of investment options making it easier to access this market."

Gold and silver

The value of global gold turnover increased by a quarter in 2010 to a record $25.1 trillion. Silver trading increased by 57% to a record $3.2 trillion. The increase was largely due to the safe-haven appeal of precious metals during the economic slowdown and rise in prices, with gold closing the year close to its all-time record high of over $1,420 per ounce and silver breaching $30 per ounce for the first time in 30 years.

The value of exchange-traded gold increased by 60% in 2010 to a record $8.2 trillion. Trading of silver on exchanges doubled during the year to a record $1.9 trillion. Around two-thirds of gold and 40% global silver trading is conducted on OTC markets, primarily through the London Bullion Market Association (LBMA). Daily reported net trading in gold on the LBMA averaged $22.5 billion in 2010, up 12% on the previous year. Daily trading in silver on the LBMA increased by a fifth to $1.8bn. The actual volume of London market turnover is probably three to five times higher than recorded LBMA turnover because transactions which are netted out do not appear in the published statistics.

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