Divided on LME, Rusal, MillerCoors unite on CME aluminum contract

NEW YORK Wed May 7, 2014 2:20pm EDT

Related Topics

NEW YORK May 7 (Reuters) - CME Group Inc's upstart aluminum contract has won the support of Russian producer Rusal and major consumer MillerCoors, uniting two industry heavyweights whose views clash over the London Metal Exchange's warehousing crisis.

In a statement on Wednesday a day after the launch of its North American aluminum contract, CME said Macquarie Bank Ltd executed the first trades, underscoring the Australian bank's efforts expand its U.S. commodities business.

In the same release, Steve Hodgson, Rusal's director of sales and marketing, threw his weight behind the new contract, which he said offers an alternative pricing and hedging tool in North America to the LME's global benchmark.

Tim Weiner, MillerCoors' global risk manager, reiterated his support for the new contract, saying he will use it to hedge his company's aluminum exposure.

Both Rusal and MillerCoors are staunch critics of the LME and its handling of a years-long crisis over its warehousing policy, which has led to inflated physical prices and distorted supplies of metal, upending global futures and physical trading.

But the unity ends there. Consumers such as MillerCoors say the London exchange has not gone far enough to deal with the problem.

At the opposite end is Rusal, which launched a successful legal case to get proposed rule changes blocked.

With 56 contracts traded on Tuesday and 116 on Wednesday, the latest incarnation of a North American aluminum contract is a long way from rivaling the LME's benchmark, which sets the global price and is the exchange's biggest product by turnover and liquidity.

The New York Mercantile Exchange (NYMEX), now owned by CME, struggled for 10 years to gain traction with a similar product before being delisted in 2009. It was unable to lure established users away from London.

Even so, the unlikely alliance of the world's No. 1 producer and a major user of metal will likely fuel the debate over the potential success of the contract's latest incarnation.

Some say uncertainty over the LME's warehousing policy has given the CME the best chance yet to challenge the London exchange, while others say it will struggle to lure cash from an entrenched benchmark.

(Reporting by Josephine Mason. Editing by Andre Grenon)

FILED UNDER: