First trades for Fastmarkets-settled alumina contract on LME

The London Metal Exchange’s cash-settled alumina futures contract, which is settled against a basket of prices that includes Fastmarkets’ index, traded for the first time on Thursday October 17.

Ten lots traded at $284 per tonne for November 2019. There were also two separate trades on the January 2020 contract at $294 per tonne for 10 lots each.

The trades concluded between 8:18 and 8:23am London time on LMESelect. The lot size for the contract is 50 tonnes.

The contract is settled against Fastmarkets’ benchmark daily fob Australia alumina index and CRU’s alumina price index - equal weighting is given to each index. The contract was launched on March 11, 2019, followed by a suite of six other new cash-settled futures contracts.

The LME contract provides the market with a new hedging tool during times of extreme volatility.

Fastmarkets’ daily alumina index, fob Australia is at its lowest since May 2017 at $277.19 per tonne as of on Wednesday October 16. This is down by 30% since the start of 2019 due to an oversupply of material, including several unplaced cargoes ready for loading between November and January.

The situation is significantly different from last year when prices were at record highs due to tight supply, caused by production curtailments at Norsk Hydro’s Alunorte alumina refinery.

At the height of market tightness in April 2018, the fob Australia alumina index hit a record high of $707.75 per tonne.

The alumina market was traditionally priced as a percentage of the outright aluminium price on the LME but contracts have since changed to being based on price reporting agency (PRA) indices, which better reflect the unique fundamentals of the alumina market in times of volatility.

Since this shift, Fastmarkets’ alumina index has gained significant traction in becoming a settlement option for more physical contracts in the market.

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