Last week, the world’s largest producer of aluminum, UC Rusal, began giving its customers the option of using the CME Group ‘s Chicago-based aluminum futures contract to set prices for its products.
CME began offering the contract in May, after widespread dissatisfaction with the warehouse situation with the London Metal Exchange’s aluminum futures contract and its load-in, load-out rules.
“It’s clear that there is strong industry support for our North American physically delivered aluminum contract,” said Damon Leavell, director of corporate communications, commodity products, for the CME Group. “Customers have asked CME Group to provide them a physically deliverable aluminum futures contract – with delivery locations concentrated in the Midwestern part of the U.S. – that provides them greater transparency in the North American markets. This new benchmark serves as the price reference for the North American aluminum industry and enables industry participants to better hedge their price risk.”
While the LME’s contract has warehouses throughout Europe, the CME’s has only North American operations. It was UC Rusal who filed the lawsuit that got the LME’s proposed linked” load-in, load-out scrapped back in April in a case before the London High Court. Under that plan the day a buyer requested to remove aluminum from an LME warehouse with queues of more than 50 days would have been forced to load out more metal than it brings in, but the High Court ruled that the market consultation which LME conducted before arriving at the decision was, among other things, “unfair and procedurally flawed.”
The CME Group’s contract currently has warehouse operation partnerships with Scale Distribution in Ypsilanti, Mich., C. Steinweg in Baltimore, and Henry Bath in New Orleans.
“Our aluminum contract serves as the price reference for the North American aluminum industry and is an all-in price, which includes overall supply and demand specific to the North American market,” Leavell said.