U.S. aluminum futures debut amid legal wrangling on London rules
Aluminum futures trading started on Monday on the CME Group Inc. in Chicago, a move supported by companies such as MillerCoors LLC that complained of price distortions cause by delivery delays at warehouses run by the London Metal Exchange.
The new futures contract will offer a “North American benchmark for managing price risk” on aluminum — with access to the metal at warehouses in Baltimore, New Orleans and Ypsilanti, Mich., according to the CME, which owns the world's largest futures exchange.
The London Metal Exchange, the biggest market for metals including aluminum and copper, received complaints over the delays and higher prices from MillerCoors, a beer brewing venture owned by SABMiller Plc, Molson Coors Brewing Co. and others.
The companies said that deliveries from warehouses take too long, distorting prices. The London exchange postponed new storage rules when a U.K. judge said the steps were “unfair and unlawful” after a lawsuit brought by aluminum maker United Co. Rusal.
The reforms were intended to reduce artificial backlogs that inflated the cost of the metal on the wholesale market.
The decision in March by the High Court of Justice in London involved mundane commodities exchange rules that governed how long warehouses could store aluminium lots before delivering them to customers.
The London Metal Exchange wanted warehouses that are part of its global network to keep aluminum off the market for no more than 50 days. Some warehouses were said to store metals for 100 days or longer, a practice that generated higher fees and inflated the cost aluminum users paid.
“A number of our customers have shown some interest” in the CME contract, said Michael Turek, a senior director at Newedge USA LLC in New York. “Everybody is taking a wait-and-see approach” to gauge liquidity, he said.
The time needed to withdraw aluminum from London Metal Exchange-linked warehouses in the Dutch city of Vlissingen increased to 22.5 months, Harbor Intelligence, a research company based in Austin, said in a report on April 2. Other complaints have come on deliveries from a LME-linked warehouse in Detroit.
The exchange has approved terminals in 38 locations in 15 countries, including the United States.
Experts said last year that the backlogs and other market-distorting practices by investment banks and speculators added an estimated 1 to 3 cents to every aluminum bottle or can.
“We know that it takes times for new contracts to grow and develop liquidity,” said Chris Grams, a CME spokesman.
The CME futures contract, which will combine the underlying price of aluminum along with a premium, will be a “potentially useful tool” to help eliminate many price issues, Tim Weiner, global risk manager at MillerCoors, said in March.
The premium is based on warehouse inventory levels, time in storage and transportation costs.
In London, the price for aluminum delivery in three months rose 0.1 percent to $1,786 a ton on May 2. The metal has dropped 1.4 percent in the past 12 months.
Bloomberg News and Trib Total Media staff writer John D. Oravecz contributed to this report.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Operating loss widens at Highmark parent
- Stocks fall for 2nd straight day as corporate earnings concerns deepen
- Pennsylvania grid operator might delay power auction for new rules
- Anchor Hocking parent EveryWare files for Chapter 11
- Consol Energy files for IPO of coal spin-off
- Summer blend to boost gasoline prices over next month
- Pa. Gas & Electric agrees to $6.8 million settlement of polar vortex claims
- Stocks of Pittsburgh-area companies set record in March
- Conventional gas, oil drillers seek rules differing from shale industry in Pennsylvania
- Pittsburgh region’s unemployment rate stays steady
- U.S. Steel considers temporary shutdown of Minn. plant