London Metal Exchange to launch new alumina and aluminium premium contracts in March

According to a Reuter’s report, the London Metal Exchange (LME) has announced seven new contracts to be launched on March 11. LME has not been very successful in launching new products and are mostly dependent on its core base metal contracts.  LME hopes to boost trading activities in the exchange with the multiple new contracts.

The new contracts are all cash-settled futures indexed against physical market price assessments and there will be no physical delivery.

LME will launch two new aluminium premium contracts- one indexed against Platts’ assessment of the Midwest U.S. market and one against Fastmarkets MB’s assessment of the duty-unpaid European market, in competition with CME.

Super-charged aluminium premiums played a key role in the market in 2013 due to the long load-out queues in the LME’s storage system. LME launched it premium contracts then, but could not continue.  The new contracts, according to the LME were launched as the exchange received market requests from users who wished to manage their entire aluminium price exposure on a single platform.

“The LME understands that the premium pricing market continues to evolve, and has committed to a user choice model whereby the LME will support the growth of the market by listing complementary aluminium premium indices, should market participants request this,” the statement says.

LME will also launch a new alumina contract in order to compete directly with CME. CME launched its own alumina contract in 2016, which however, enjoyed only limited success with a volume of 5,755 contracts in 2018. It didn’t trade at all in December.

LME sees the immediate need of a liquid global alumina contract. The volatility in alumina prices seen in 2018 and the way it affected the global aluminium production chain, prompted LME to come up with a liquid alumina contract. Having moved away from linking the price of alumina to that of aluminium, the industry found itself with no natural hedge against extreme volatility in the alumina price last year.

The LME’s contract will be priced using a basket methodology, using both CRU and Fastmarkets MB assessments. LME will also launch two new hot rolled coil (HRC) steel contracts and two new contracts for molybdenum and cobalt. A lithium contract will be launched in the fourth quarter of this year, as the LME seeks to capitalise on the electric vehicle revolution.