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CME Aluminum futures contract makes debut

Keywords: Tags  CME Group, aluminum contract, Young-Jin Chang, futures contract, Midwest premium, aluminum, Nathan Laliberte


NEW YORK — CME Group Inc.’s aluminum futures contracts, intended to offer a North American benchmark for managing price risk, have been actively traded in their May 6 debut.

The active trading in the new aluminum contracts stands in contrast to other metals contracts recently introduced by the Chicago-based exchange, according to CME Group director of metals research and product development Young-Jin Chang.

"I think it has a lot to do with market interest. We have been getting a lot of feedback," Chang told AMM. "We are definitely fulfilling a need."

The contracts, which are 25 tonnes in size and deliverable to North American warehouses, will provide global aluminum market participants a new tool for managing exposure to "volatile North American prices" while allowing access to physical aluminum at several CME Group-approved warehouses in Baltimore, New Orleans and Ypsilanti, Mich. (amm.com, March 18).

The target market of the contracts is "everyone in the supply chain who have premium exposures" or need to hedge North American aluminum, Chang said.

"If you are an end-user, this gives (you) an opportunity to hedge long-term premium risks," according to Chang. "For the people in the middle—traders of physical aluminum—it’s another arbitrage opportunity, based on regional premiums. For producers, this is giving them another venue to supply and fulfill customer or client needs."

The contracts offer the ability to deliver or take delivery of primary aluminum T-bars, sows and ingots in a "timely, transparent, and efficient fashion," CME Group said, adding that other benefits include intraday price and spread transparency across the futures curve, security through centralized clearing and daily mark-to-market of positions.

The exchange also offers a contract settled on a cash basis that reflects a premium for Midwest aluminum.


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