Ingot price lull triggers shift in hedge transactions on LME

Nov 19, 2008 | 10:28 AM | Paul Schaffer

With secondary aluminum ingot sales at a low ebb, some sellers are altering hedge transactions on the London Metal Exchange into delivery opportunities.

Frequently a smelter, hedging against price fluctuations, will act as the seller in a futures contract. If metal values move in an unprofitable direction, the completed futures transaction will show an offsetting gain.

One market participant said Wednesday that the LME's North American special aluminum alloy contract (Nasaac) prices are too low currently to justify sales of physical ingot into warehouses. Meanwhile, diecasters' intake needs, normally the core of the business, are very low. So what were initiated as hedging transactions become a valuable opportunity to move metal, since the seller can insist that the buyer of the futures contract take physical delivery.....

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