CME Group Inc will launch in May a physically deliverable aluminium futures contract in North America to compete with LME’s $54 billion market.
The group came up with the plan after LME implemented the sweeping reforms to its metals warehousing system after a years-long crisis that has undermined its own aluminium futures contract.
"We have had a high level of engagement from major market participants, as well as smaller players, who are looking for an alternative to the exchange contract they have today and who want to be able to manage price risk," Harriet Hunnable, CME Group’s managing director of metals, told Reuters.
Hunnable said a team for CME had been signing up a number of participants since months, and in 2 or 3 years it will be "robust and a significant size". The new contract will start trading on May 5, pending the regulatory approval, said Hunnable.
CME said it has plans of launching the contract in October and has been canvassing traders, producers and end-users for months.
The new contract has the approval of at least one large consumer of aluminium, MillerCoors, which uses aluminium to make drinks cans.
"It's one of the single largest commodity price risks we face today as a company and an industry," Tim Weiner, MillerCoors global risk manager, said in the CME's statement.
"We see this North American aluminum contract, which will combine both the underlying price of aluminum along with the premium, as a potentially useful tool to help us eliminate many hedge accounting issues."
Henry Bath unit of JPMorgan Chase & Co, Scale Distribution,the part owned by Macquarie Group in Australia and C Steinweb have applied for the new contract to be warehousing firms in 3 different cities.
If the application gets approved, Henry Bath will operate in New Orleans, Scale Distribution in Ypsilanti, Michigan and Steinweg in Baltimore, said CME in a notice to members.
According to aluminium consumers and end users, long queue for metal delivery and incentives paid by the LME warehouse operators owned by Wall Street banks and big merchants, have affected supplies and caused physical prices to go abnormally high in a market which is overstocked with 10-million tons surplus.
U.S., European and British regulators are investigating the issue as well as the exchange; Glencore Xstrata PLC and Goldman Sachs Group Inc are among the targeted ones in a series of the class-action lawsuits.
