Bloomberg News

Aluminum Futures Debut on CME Amid Wrangling on LME Rules (2)

May 06, 2014

CME Group Inc. (CME:US) futures trading started for aluminum that can be loaded from U.S. warehouses, a move supported by companies including MillerCoors LLC amid delays at depots linked to the London Metal Exchange.

The new contract offers the global industry a “North American benchmark for managing price risk” with access to the metal at warehouses in Baltimore, New Orleans and Ypsilanti, Michigan, CME Group, the Chicago-based owner of the world’s largest futures exchange, has said.

The LME, the biggest market for metals including aluminum and copper, faced complaints from MillerCoors, a venture owned by SABMiller Plc and Molson Coors Brewing Co., and some beverage makers. The companies said that deliveries from warehouses take too long, distorting prices. The LME postponed new storage rules after a U.K. judge said the steps were “unfair and unlawful” following a lawsuit brought by United Co. Rusal.

“A number of our customers have shown some interest, largely an arbitrage interest,” in the CME contract, Michael Turek, a senior director at Newedge USA LLC in New York, said in a telephone interview on May 2. “Everybody is taking a wait-and-see approach” to gauge liquidity, he said.

The time needed to withdraw aluminum from LME-linked warehouses in the Dutch city of Vlissingen increased to 22.5 months, Harbor Intelligence, a research company based in Austin, Texas, said in a report dated April 2. The exchange has approved terminals in 38 locations in 15 countries, including the U.S.

‘Takes Time’

Aluminum futures for July delivery were $2,179.75 a metric ton at 6:50 a.m. Chicago time, up from a low of $1,835 in trading of 34 contracts of 25 tons each. Trading started on the CME’s electronic platform, and floor hours will be from 7:10 a.m. to noon.

The exchange already offers a contract settled on a cash basis reflecting a premium for Midwest aluminum.

“We know that it takes times for new contracts to grow and develop liquidity,” Chris Grams, a CME spokesman, said in an e-mail on May 2.

The CME contract, which will combine the underlying price of aluminum along with the premium, will be a “potentially useful tool” to help eliminate many hedge-accounting issues, Tim Weiner, global risk manager at MillerCoors, said in March.

Aluminum is the most-active contract on the LME with 66.6 million futures and options traded last year, according to the exchange.

In London, the price for delivery in three months rose 0.3 percent to $1,791.50 a ton. The LME was closed yesterday for a holiday. Through May 2, the metal dropped 1.4 percent in the past 12 months.

Premiums added to the LME price in Europe, the U.S. and Asia climbed to records this year, widening a gap between the full cost of obtaining aluminum and the benchmark price.

To contact the reporter on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net

To contact the editors responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net


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