Abstract: Making Markets: From Listed Prices to Spot Markets in International Commodity Markets in the 1970s

Espen Storli


Historically there have been two ways of establishing prices for commodities. For some commodities producer pricing systems have been the norm, while for others exchange prices have been the dominant mechanism. In a producer pricing system the major firms in the industry set prices, while in an exchange system prices are related to price quotations on an organized commodity exchange like the London Metal Exchange (LME). When producers set commodity prices, all purchasers of the good are consumers, when they are sold on exchanges, brokers and speculators also play a part.

In the late 1970s and early 1980s the pricing of the most important non-ferrous metals changed radically. In copper, where both pricing mechanisms had been present since the late 19th century but the list prices had been dominant, the producer price saw a virtual demise. At the same time aluminium and nickel contracts were introduced for the first time on the LME. Spot market trading of these metals on the LME was only introduced against outspoken and resolute opposition from the major producers, and was also discouraged by the UK authorities.

The paper investigates this dramatic shift in the international markets for commodities by focusing on the process leading up to the introduction of aluminium trading on the LME. Why was the producer price system weakened in this period? Which actors wanted it replaced with a spot market and how where they able to succeed? What was the long-term consequence of the shift for industry and consumers?