Liquid Midwest premium futures sought

Jan 29, 2014 | 11:43 AM | Michael Cowden

Tags  Midwest premium, aluminum futures, Skana Aluminum, Robert Gamba, Ohio Valley Aluminum, Mike Mackin, London Metal Exchange, aluminum regional premiums

CHICAGO — Aluminum consumers want a more liquid and transparent vehicle to hedge their exposure to regional aluminum premiums, especially given the unprecedented volatility seen in U.S. Midwest premiums over the past month, market sources told AMM.

A liquid Midwest premium futures contract is also necessary due to the cost and illiquidity of some over-the-counter mechanisms, market sources said, noting that it would also help consumers better explain and pass on metal costs to downstream customers.

Aluminum consumers were comfortable accepting exposure to the Midwest premium when it was a few cents per pound with limited volatility, Skana Aluminum Co. president and chief operating officer Robert M. Gamba said in a telephone interview with AMM.

"But we have seen a massive inflation since the beginning of year, and it’s unhedgeable," he said. "The (London Metal Exchange) portion is still 80 percent of the equation. But the volatility of that 80 percent has not been as bad as what we have seen with the Midwest premium."....

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