Reuters
CME expects aluminium premium swaps trades by end-year
Edited by : AL CIRCLE
2 min read
CME Group (CME.O) expects to see the first trades in its new aluminium swap futures contract by the end of this year as it taps consumer frustration with having to pay steep surcharges to get metal in the midst of a glut, the exchange's head of metals said.
The contract is based on the Platts figure for the premium paid over the London Metal Exchange (LME) cash price to secure aluminium in the U.S. Midwest.
"All the feedback that we have shows it is of significant interest and use to the U.S. commercial sector and meets the need for them to manage their risk that no other contract today enables them to," Harriet Hunnable, managing director of metals products at CME, said in an interview.
The new product will be financially settled and cleared through the exchange, she added.
After losing out in the final stages of a year-long takeover battle for the LME (0388.HK) in May, the CME has little choice but to challenge its rival if it wants to expand its share of the lucrative global metals market, dealers say.
The U.S. aluminium contract would capitalize on frustration with the LME's efforts to deal with its warehousing policy. Aluminium users are seething over the massive queues and record premiums tied to the LME's global warehousing system, despite an oversupply of the metal.
The problem originates with warehouses owned largely by JPMorgan (JPM.N), Goldman Sachs (GS.N) and Glencore (GLEN.L), which are offering incentives and financing deals to producers and traders to store metal in their depots. The large volumes locked up in storage and LME rules that allow limited load-out rates are forcing end-users to pay up to secure metal.
Consumers' risk exposure is to the premium rather than to the underlying LME base price.
"Certainly we see that the problem with warehousing is a major factor and something that costs the consumers," Hunnable said.
An aluminium industry source said that while the CME's plan is credible, there is a lack of potential marketmakers to ensure the success of any premium-hedging instrument.
The contract is based on the Platts figure for the premium paid over the London Metal Exchange (LME) cash price to secure aluminium in the U.S. Midwest.
"All the feedback that we have shows it is of significant interest and use to the U.S. commercial sector and meets the need for them to manage their risk that no other contract today enables them to," Harriet Hunnable, managing director of metals products at CME, said in an interview.
The new product will be financially settled and cleared through the exchange, she added.
After losing out in the final stages of a year-long takeover battle for the LME (0388.HK) in May, the CME has little choice but to challenge its rival if it wants to expand its share of the lucrative global metals market, dealers say.
The U.S. aluminium contract would capitalize on frustration with the LME's efforts to deal with its warehousing policy. Aluminium users are seething over the massive queues and record premiums tied to the LME's global warehousing system, despite an oversupply of the metal.
The problem originates with warehouses owned largely by JPMorgan (JPM.N), Goldman Sachs (GS.N) and Glencore (GLEN.L), which are offering incentives and financing deals to producers and traders to store metal in their depots. The large volumes locked up in storage and LME rules that allow limited load-out rates are forcing end-users to pay up to secure metal.
Consumers' risk exposure is to the premium rather than to the underlying LME base price.
"Certainly we see that the problem with warehousing is a major factor and something that costs the consumers," Hunnable said.
An aluminium industry source said that while the CME's plan is credible, there is a lack of potential marketmakers to ensure the success of any premium-hedging instrument.
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