CME Japan aluminium premium contract logs first trade

CME Group has logged the first trades in its Japan aluminium premium contract, data from the exchange showed on Monday, just days after the industry hammered out the first quarter premiums for Asia's biggest importer of the metal.

The trades, coming in the wake of the quarterly industry negotiations, deal a blow to the London Metal Exchange as the U.S. bourse builds up its metals business in Asia.

CME's premium contract, which launched Dec. 7, traded 622 lots in several block trades on Friday for contracts from January to December 2016. The January contract settled at $108.78 a tonne, while those along the curve settled at $108. The contracts were bid at $95 a tonne and offered at $115 on Monday.

Japan is Asia's biggest importer of the metal and the premiums for primary metal shipments it agrees to pay each quarter over the London Metal Exchange (LME) cash price set the benchmark for the region. Japan's first quarter aluminium premiums were set on January 6 at $110 per tonne, up 22 percent from the previous quarter.

The CME already launched a U.S. premium contract 3-1/2 years ago and a European one in September. The launch of its Japan premium rounded out its global suite, but the timing underscored the growing competition between the two exchanges.

The LME, the world's oldest and largest market for industrial metals now owned by Hong Kong Exchanges and Clearing Limited, launched its new Asian aluminium premium contracts on November 23. But according to exchange data, its East and South East Asia contracts did not trade up until the end of last year.

The aluminium industry for years cried out for contracts to help hedge price risk as premiums, a surcharge to take delivery of metal, started a four-year tear that saw them quadruple to more than $400 a tonne by 2015.

Premiums had inflated as large queues grew at warehouses that took in more metal than they could deliver out, leaving an industry exposed because members could not hedge their price risk. PREM-ALUM-JP

But a year ago, the bubble collapsed, leaving many, including major producer UC Rusal, questioning whether the new contracts had come too late. The premiums collapsed as China stepped up its exports and the LME changed its warehousing rules that freed up supply.