Fastmarkets-settled MJP aluminium contract to launch on LME

The London Metal Exchange is seeking to launch a new cash-settled main Japanese ports (MJP) aluminium premium contract settled against a Fastmarkets price, the exchange said on Wednesday November 13.

The contract, which will be settled against the monthly average of Fastmarkets MB’s aluminium P1020A spot cif MJP price, is likely to be launched in the second half of 2020, subject to regulatory approval. Detailed contract specifications will be announced in the coming months.

“The contract will complement the suite of cash-settled futures launched on 11 March 2019, and will strengthen the LME’s provision of price risk management tools across the aluminium value chain,” the LME said in a statement.

Within that suite, Fastmarkets has partnered with the exchange in several cash-settled contracts across the aluminium supply chain. These include the LME’s aluminium duty-unpaid European contract, which is settled against Fastmarkets MB’s benchmark daily Rotterdam duty-unpaid premium.

Also included is the LME’s alumina contract, which is settled against Fastmarkets MB’s benchmark daily fob Australia alumina index, with CRU’s alumina price index given equal weighting.

“The addition of the main Japanese ports contract on the LME highlights the key role Fastmarkets’ prices and premiums play throughout the global aluminium supply chain,” Fastmarkets chief executive officer Raju Daswani said.

The LME is seeking to launch more contracts throughout 2020.

Hedging opportunities in evolving market
The launch of an MJP contract will give market participants more opportunities to hedge in a rapidly evolving spot market.

“We are encouraged to see the Japanese aluminium premium market evolve towards a spot pricing basis. This facilitates robust price discovery for futures settled against a monthly average. We look forward to providing hedging tools tailored to this market in H2 2020,” Robin Martin, head of market development at the LME, said.

Japan, Asia’s largest aluminium importer, is shifting away from the traditional quarterly benchmark premium system to one where it purchases more units on the spot market.

That shift is partially due to the effect of the sanctions that the United States imposed on aluminium producer Rusal in 2018 – this significantly widened the gap between the quarterly MJP benchmark and the spot premium.

“It will be good thing for [financial participants], like hedging or risk control for funds and banks,” a market source in Asia said.

The spot premium rose to as high as $180-200 per tonne on April 20 last year compared with a quarterly premium of $129 per tonne. But the spot premium fell as low as $80-100 per tonne in July 2018 while the quarterly premium was at $132 per tonne.

“I think it will be a great thing if the LME announces the MJP contract. It will help the market to come back to a level close to the spot market,” a trader in Asia said.

Fastmarkets assessed the aluminium P1020A MJP spot premium, cif Japan, at $65-75 per tonne on November 12, unchanged from Friday last week. Fastmarkets will next assess the premium on November 15.

The launch of an LME contract would also streamline how some market participants hedge, especially with the choice to hedge underlying LME prices with the premium.

“An LME contract will offer all-in hedging for underlying prices and premiums, which makes things easier,” a senior trader from a Japanese general trading company said.

On Monday November 25, Fastmarkets will host a webinar on the evolution of MJP aluminium premiums. The webinar will cover:

  • An introduction to Fastmarkets MJP spot aluminium premium and methodologies
  • The move from quarterly to spot pricing in the MJP market
  • Recent market trends; and
  • Key market and price drivers

To register for the Evolution of MJP Aluminium Premiums webinar, please click here.
To learn more about Fastmarkets’ pricing methodology/specifications, please click here.