CME to launch options contract on aluminium physical futures

CME Group will launch an options contract on its physically-delivered aluminum futures on May 23, pending regulatory review, the Chicago-based exchange said

CME conducted its first physical trade of aluminium in March, using CME’s own price and premium in an electronic auction – potentially positioning it to compete with the London Metal Exchange (LME).

That March 3 transaction was followed by another successful online auction on April 7.

CME, the world’s leading derivatives marketplace, has long facilitated physical trading of some metals, notably copper, but not aluminium.

CME has made many attempts over the years to facilitate physical aluminium trades, but did not gain traction until recently, Fastmarkets sources said.

“Clients are increasingly turning to our aluminum markets, with a record 4,888 aluminum futures contracts traded on April 19 and average daily volume in April currently around 1,300 contracts, up by over 100% from last year,” global head of metals at CME Group Jin Chang said in Tuesday’s announcement.

“Our new option contract is the latest example of CME Group’s decade-long track record of helping the aluminum community to manage risk as their needs evolve,” Chang added.

US aluminium market participants are now more receptive to an alternative to the LME, Fastmarkets sources say, but a major deterrent is the fact that most use the LME network to trade metal.

Using a CME computer system for the premium while trading the metal on another would be both awkward and risky, US sources say.

Aluminium has been trading at record premiums in the US. Fastmarkets assessed the benchmark aluminium P1020A premium, ddp Midwest US at 39.75-40.25 cents per lb on Tuesday April 26, narrowing down from 39-41 cents per lb on Friday April 22.

The premium declined from its highest level since Fastmarkets’ assessment began in January, 2003. Bearishness depressed aluminium metal prices on the LME, sources said, in part due to global market jitters about China’s worsening Covid-19 situation.

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