NEW YORK CME Group Inc.
continues to approach potential customers in an effort to see
its fledgling aluminum premium swap futures contract gain
traction, a spokesman for the Chicago-based exchange told
"Right now, were
continuing to talk with customers and help them understand the
benefits of the contract," the spokesman said, noting that
its not unusual for new contracts to take some time
before garnering interest.
"What generally happens when we
launch contracts, its less of a big bang. If you take any
of our benchmark contracts, like oil, gasoline, or even gold
and silver, they all started out very slowly. It takes time for
the market to (warm up)," he said.
CMEs Midwest aluminum
premium swap futures contract, which was launched in April
based on Platts premium assessment, has yet to trade. The
contract was introduced some two and a half years after CME
opted to delist its aluminum futures contract due to inactivity
amm.com, Oct. 6, 2009).
Market participants said a lack
of liquidity is largely behind their reluctance to use the new
contract during its first five months of activity.
"It came out (in April) and
thats the last I heard of it. There doesnt seem to
be any liquidity," one trader said. "The bid and the ask were
too large and people were ignoring it. No one is paying any
attention to it. ... We have never successfully (used) an
aluminum contract other than the LME."
A second aluminum trader agreed,
noting that his company hadnt yet taken a hard look at
the nascent swap product. "They talked to us about it (but)
its kind of in a vacuum," he said.
The contract is a good idea in
theory, traders said, but added that CME needs more support
from producers, consumers and traders before it can take
"Its a good idea. It would
determine what the real premium is," the first trader said.
The swap futures contract is
intended to allow buyers and sellers a vehicle to financially
hedge against the Midwest aluminum premium, which has soared to
record levels this year largely due to traders storing millions
of tonnes worth of aluminum in warehouses around the
worlda large share of which is in Detroit.
AMMs Midwest spot
premiums are between 11 and 11.5 cents per pound, more than
double the October 2009 premiums of between 5.25 and 5.5 cents
As a result of the run-up,
premiums have become a significant part of consumers
costs, CME said, arguing that the new swap contract would allow
for all partiesproducers, distributors, traders, banks
and consumersto hedge against the skyrocketing input.
"This is the first exchange
product that enables the aluminum Midwest premium to be
managed," CME wrote in a document explaining the contract
posted to its website. "This contract enables market
participants in North America to better manage their price
risk. Its a hedging opportunity for the U.S. aluminum
industry to mitigate the risk on the Midwest premium."
The swap contract should be seen
as a compliment to the existing LME deliverable aluminum
contract as opposed to a competing contract, the CME spokesman
"Its not necessarily going
head-to-head (with the LME contract)," he said. "You
wouldnt take a product like this and compete with a
deliverable futures contract."