This article reports the results of a survey of firms operating in the London commodity futures markets conducted by the Bank at the beginning of this year. The results indicated that:
- firms in the survey traded futures contracts covering a total of thirty commodities during January 1986, four fifths of which were placed with UK exchanges;
- few firms in the survey may be considered to be large employers compared with companies in the industrial sector and only six employed staff overseas;
- client business predominated in participants' portfolios, with firms serving a principally European client base;
- following the downward trend in earnings over the last four years, the London commodity futures markets appear to have entered a new phase of re-appraisal and consolidation;
- there is general support for moves towards more integrated markets, including the increased participation of independent ('local') traders;
- commodity options will probably be an important growth area in the London markets in the next few years.
In general, participants in the survey felt that the London commodity futures markets would need to be flexible in responding to changing circumstances in order to remain competitive with their counterparts overseas. Events in the survey period (December 1985 to April 1986) were strongly influenced by the suspension of tin trading on the London Metal Exchange (LME) on 24 October last year following the default of the International Tin Council (ITe). This default, and the failure of subsequent lengthy efforts to arrive at a negotiated settlement of the ITC's obligations, led to heavy losses for some firms. These losses are not reflected in the profits data included in this article, which in most cases covered periods ending before October 1985. As a result, a marked deterioration in profits may be expected this year for those firms which were most adversely affected.
The commodity futures markets