The LME said the merger, which it plans to achieve by April 2010, would create “a concentration of liquidity into a single price benchmark with multiple delivery options that offers the steel industry the best flexibility in managing price risk”.

The exchange said the new single steel contract would enable users of the market to swap physical billet warrants between different regional warehouse locations. They would also enjoy more favourable levels of finance because they would be able to deliver to LME warehouses, where the warrants can be held as collateral for loans.

The LME also plans to increase the number of delivery locations for the steel contract.

The move can be seen as LME’s response to the phenomenal success of the Shanghai Futures Exchange’s Steel Reinforcing Bar Future. In November, this was traded 38m times, making it the second most actively traded listed derivative in the world by number of contracts, behind the Korea Exchange’s Kospi 200 option.

The Steel Rebar Future only began to trade at the end of March. Each of the Shanghai contracts is for 10 tonnes of steel, meaning that 380m tonnes were traded in November. Open interest at the end of the month was 6.6m tonnes.

At the LME, there were 2,596 trades of the Mediterranean contract in November, each worth 65 tonnes, for a total of 168,740 tonnes. That is about one 2,000th as much as the Shanghai trading.