* CME aluminium contract to be physically deliverable
* CME sees contract as "robust and significant" in 2-3 years
* MillerCoors sees contract as "a potentially useful tool"
(Adds details about warehousing, paragraphs 9-12)
By Susan Thomas
LONDON, March 18 CME Group Inc will
launch a North American physically deliverable aluminium futures
contract in May that could compete with the London Metal
Exchange's (LME) $54 billion market.
The move comes after the LME has implemented sweeping
reforms to its metals warehousing system after a years-long
crisis that has undermined its own aluminium futures contract.
"We have had a high level of engagement from major market
participants, as well as smaller players, who are looking for an
alternative to the exchange contract they have today and who
want to be able to manage price risk," Harriet Hunnable,
managing director of metals at CME Group, told Reuters.
Hunnable said a CME team had been signing up participants
for months, and that in two or three years it will be "robust
and a significant size". The new contract will begin trading on
May 5, pending regulatory approval, she said.
CME said in October it would launch the contract and has
been canvassing producers, traders and end-users for months.
The new contract has the approval of at least one large
consumer of aluminium, MillerCoors, which uses aluminium
to make drinks cans.
"It's one of the single largest commodity price risks we
face today as a company and an industry," Tim Weiner,
MillerCoors global risk manager, said in the CME's statement.
"We see this North American aluminum contract, which will
combine both the underlying price of aluminum along with the
premium, as a potentially useful tool to help us eliminate many
hedge accounting issues."
JPMorgan Chase & Co's Henry Bath unit, Scale
Distribution, part owned by Australia's Macquarie Group
, and C Steinweb have applied to be warehousing firms in
three different cities for the new contract.
If approved, Henry Bath will be in New Orleans, Scale
Distribution will operate in Ypsilanti, Michigan and Steinweg in
Baltimore, the CME said in a notice to members following the
Ypsilanti is near Detroit, the focus of regulatory and legal
scrutiny in a long-running controversy over the LME's
Long wait times and incentives paid by LME-registered
warehouse operators, owned by Wall Street banks and big
merchants, have distorted supplies and inflated physical prices
in a market awash with an estimated 10-million tonne surplus,
metals consumer and manufacturers have said.
U.S., British and European regulators are now investigating
the issue and the exchange, Goldman Sachs Group Inc and
Glencore Xstrata PLC are among those targeted in a
series of class-action lawsuits.
The LME's new owners, Hong Kong Exchanges and Clearing
will implement a series of measures on April 1 aimed
at curbing wait times for users to take delivery of metal,
placating users and protecting its stronghold in the global base
Some aluminium users have said the measures do not go far
enough while Russian aluminium producer Rusal says it goes too
Rusal is seeking court permission for a judicial review,
hoping to quash the LME moves it says may undermine the price at
which the company sells its products.
Still, despite the uncertainty over the LME's warehousing
revamp, the CME might find it hard to lure money away from a
deeply entrenched benchmark, which took some seven years to win
over producers after its launch in 1978.
There are very few examples of new commodity contracts
dislodging a critical portion of liquidity from an established
The New York Mercantile Exchange (NYMEX), now owned by CME,
struggled for 10 years to gain traction with a North American
aluminium contract before delisting it in 2009. It was unable to
lure established users away from London.
(Additional reportined by Josephine Mason in New York; Editing
by Veronica Brown and Louise Ireland in London)