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LME supports blockchain consortium to track global metals

The London Metal Exchange is reported to be backing plans by a consortium of metals traders and banks to develop a blockchain-based system for tracking the trade of physical metal.

According to the Financial Times the LME, the world’s largest metals trading venue, supports the initiative dubbed ‘Forcefield’. The consortium is led by Swiss commodity trader Mercuria and includes banks such as Macquarie and ING, each contributing to providing a better picture of the flow of metals around the world.

The initiative would enable industrial consumers to better track the source of their metal and give metals traders secure ownership of their inventory.

Supply chain impact

The FT notes that the initiative comes as companies face increased pressure from investors and non-government organisations (NGOs) to detail the environmental and social impacts of their supply chains.

Although the LME closely tracks metal such as copper, zinc and aluminium that sits in its global network of warehouses, a far larger amount of metal is traded and stored outside of the exchange.

The Exchange also has no approved warehouses in China, the world’s largest consumer of metals, making it harder for traders and consumers to be certain about the supply of their metal and to assess broader supply and demand conditions.

Matt Chamberlain, chief executive of the LME, has not commented on the Mercuria-led initiative but has spoken of the metal industry’s need to agree on a tracking and storage system based on blockchain, the technology behind bitcoin.

He noted that in a blockchain-based system “you know where your metal is, you have proof of your metal, but nobody can see what your metal is and where your metal is.

“That is a fantastic vision for this market and if we as an industry can come together and deliver that it will be a huge win for the metals trading community.”

Blockchain’s distributed ledger technology (DLT) reduces the need to have one central owner of the database, who would have too much private information to make it viable.

In 2016, the LME launched an electronic tracking system known as LMEshield, but to date it has not received widespread adoption by the industry.

This item appears in the following sections:
Risk Management
Financial Risk Management
Sustainable Green Treasury
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