INTL AL CONF: LME P1020 European duty-paid premiums contract to launch in 2021

The London Metal Exchange will add to its aluminium pricing offering with a new cash-settled European duty-paid aluminium premium contract settled against Fastmarkets’ benchmark Rotterdam premium.

Speaking at the Fastmarkets International Aluminium Conference on Tuesday September 22, Alex Shaw, head of product development and research at the LME, said the exchange will launch the contract in 2021.

“We’ve looked to extend [our product offering] with a duty-paid European product which we are pleased to be launching with Fastmarkets to provide both duty-unpaid and -paid for the European market,” Shaw said.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam premium at $130-140 per tonne on Friday September 18.

The premium is published twice weekly, on a Tuesday and Friday, at 4pm London time, and Fastmarkets has achieved assurance from the International Organization of Securities Commissions (Iosco) for the premium.

The LME previously launched a duty-unpaid contract settled against the Fastmarkets P1020 duty-unpaid Rotterdam premium in March 2019, in a suite of seven other new contracts including alumina.

The alumina contract is settled against the Fastmarkets alumina index, fob Australia, in a basket.

“We launched an alumina price in 2019 to provide hedging tools for that part of the pricing chain. We also launched US and European premium products which can interact with the LME [aluminium] contract to provide effective all-in prices for those different markets,” Shaw added.

“You can see differences in price performance [between aluminium and alumina] in different market conditions. Alumina prices can be seen at times to move independently and exposure to that can be hedged through the LME alumina contract where exposure is more specific to that.”

Sustainability and transparency
The LME is also targeting a number of other additions to the aluminium suite – including a focus on sustainability and transparency.

“We’re looking to target to launch a recycled aluminium contract focusing on used beverage cans to provide those tools for the secondary aluminium market and provide a product which is very low carbon in its nature of being a recycled aluminium product,” Shaw said during the virtual conference.

“This ties into the broader theme across base metals and globally around sustainability and our focus on ensuring that the role of metals is still vibrant and key in a sustainable future,” he added.

The LME unveiled a package of sustainability proposals on August 13 including new aluminium and steel scrap contracts, a spot trading platform and LMEpassport - a new digital register for physical metals data.

The proposals were set out in a discussion paper to the market with the deadline for feedback ending on Thursday September 24.

“The LME passport construct is a digital register of certificates of analysis (CoAs) that are intended to approve operation efficiency across the industry - not just across aluminium. It can be enhanced to reflect carbon-related metrics and credentials for sourcing sustainable material,” Shaw said.

“The spot trading platform is looking to provide the market with a tool for material that is not part of the futures market but sees two parties come together to buy and sell or potentially swap… It is an opportunity for the market to have a venue that enables us to have transactions and to identity if there are pricing trends within that and to share those again to the industry increasing transparency,” he added.

The LME has also focused on increasing transparency via reporting off-warrant stocks which is now taking place as part of a new reporting rule which came into effect on February 1, 2020.

Latest off-warrant stock data, released on September 10, showed 1.2 million tonnes of aluminium sitting off-warrant - with 979,833 tonnes were now in Asia.

“Transparency has been extended to take information in around off-warrant stocks to give greater certainty to the market around the availability of metal and the liquidity that is available in aluminium,” Shaw said.

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