LME

Each broad class of commodity has one exchange the whole world prices off. For base metals — copper, aluminium, zinc, lead, nickel — that exchange is the LME in London.

India has its own metal contracts. But they do not set their own level. They track the LME, because the metal itself is a globally traded product with one world price.

The practical consequence for an analyst is direct. To understand where an Indian aluminium producer's realisation is heading, you look at London first and Mumbai second.

The benchmark map. Section 11.4 names 4 global benchmark exchanges, 1 for each commodity class: "Chicago Board of Trade (CBOT) is the benchmark for trading of agricultural commodities; COMEX for bullion; NYMEX for energy products and LME for base metals."

The workbook traces how these came to matter. Organised commodity exchanges "started operating in mid-19th century and they become global trade hubs", and those hubs eventually became "global benchmark setting organizations for trading in commodities".

Why Indian prices follow. This is the mechanism that makes the LME an Indian analyst's concern rather than a piece of trivia. "The derivatives products traded on Indian exchanges are replicas of their global counterparts and their prices strongly correlate to their international exchange prices."

Applied to metals, the workbook is explicit: "base metal prices in India closely follow trends on the London Metal Exchange."

What can pull them apart. Section 11.4 does not claim the link is perfect. Domestic commodity markets are also influenced by currency fluctuations, trade policies and import-export dynamics. "A weakening domestic currency against the U.S. dollar can make imports more expensive, amplifying the impact of global price rises." Working the other way, "strong local demand, government interventions, and seasonal supply variations can sometimes cause domestic prices to diverge from international benchmarks."

So the LME sets the trend and the local factors set the gap.

On figures. The workbook gives no number for the LME — no correlation coefficient, no contract size, no volume. It names the exchange, assigns it base metals, and states that Indian base metal prices closely follow it. That is the whole of the examinable content, and a question offering a specific correlation figure is not drawn from this text.

Illustrative, following the workbook's own correlation mechanism. An analyst covers an Indian aluminium producer selling 5,00,000 tonnes a year.

LME aluminium rises from USD 2,200 to USD 2,530 a tonne, up 15%. Over the same period the rupee moves from Rs 82 to Rs 85 to the dollar.

The metal rose 15% in London. The Indian producer's realisation rose 19.2%, because the weaker rupee amplified the global rise — exactly the amplification section 11.4 describes.

On 5,00,000 tonnes, that is Rs 1,732 crore of extra revenue:

(Rs 2,15,050 − Rs 1,80,400) × 5,00,000 tonnes = Rs 1,732 crore

None of it came from the company doing anything differently. An analyst who models this producer without an LME view and a rupee view is not modelling its revenue at all.

Now the divergence case. If the government simultaneously cuts the import duty on aluminium, domestic prices can fall behind the LME move — the local intervention the workbook names as a reason domestic prices sometimes part company with the benchmark.

Section 11.4 (Correlation between international markets and domestic markets) carries the 4-exchange list and the statement that Indian base metal prices follow the LME. The chapter's learning objectives name "Correlation between international markets and domestic markets" directly.

The standard question is the matching one: pair each of the 4 exchanges with its commodity class. CBOT for agricultural commodities, COMEX for bullion, NYMEX for energy, LME for base metals. A second question asks why Indian prices track international ones, where the answer is that Indian exchange products are replicas of their global counterparts. A third asks what can break the link — currency moves, trade policy, local demand, government intervention and seasonal supply.

• LME is base metals. COMEX is bullion. NYMEX is energy. CBOT is agricultural commodities. All 4 sit in one sentence and all 4 get swapped in answer options.
• Base metals are not bullion. Copper, aluminium, zinc and lead go to the LME; gold and silver go to COMEX. This is the pairing most often reversed.
• The correlation is strong, not absolute. The workbook names currency, trade policy, local demand, government intervention and seasonal supply as reasons domestic prices can diverge.
• A weak rupee amplifies a global price rise for an Indian buyer. The workbook says so in terms, and the effect works on realisations for a domestic producer too.
• The workbook gives no numeric measure of the correlation. It says Indian base metal prices "closely follow" the LME and leaves it there.