LME Aluminium Premiums

Transcription

1 s Hedge your regional premium using global liquidity SETTING THE GLOBAL STANDARD

2 s s are a suite of regional contracts designed to help the global aluminium community: hedge their regional premium exposure discover transparent on-exchange premium prices take delivery of readily available metal The new contracts sit alongside, the world s leading aluminium contract and reference price. By trading both the existing and contracts, market participants continue to enjoy access to the LME s liquid global market and reference prices, while also fully risk-managing their exposure to regional market dynamics. The new contracts cover the four key regions of aluminium demand: US Midwest, West-Europe, East-Asia and South-East Asia. Regions covered by premium contracts LME s new aluminium contract suite contracts US West-Europe East-Asia South-East Asia 1 Four regional contracts covering the key centres of aluminium demand Global 2 Hedging of regional all-in price of aluminium 3 Physical delivery of readily available metal in premium warehouses Comprehensive warehouse reforms 4 Monthly contract to concentrate liquidity

3 90% of the world s aluminium futures business is conducted on the LME Why s? The LME is committed to continuing to provide the aluminium community with a liquid and unfragmented market as well as a global reference price. Regional premiums the additional price a buyer pays to secure metal in a specific location are a natural by-product of a global contract, driven by supply and demand. In recent times, queues in LME-licensed warehouses have also contributed to premiums. Our warehouse reforms are designed to tackle queues. contracts help the market hedge their premium price risk, whether those premiums are a product of natural supply and demand, queues, or both. How do s work? The new contracts are designed to work alongside the existing global contract to allow market participants to hedge the all-in price and physically deliver or receive premium aluminium s in non-queued LME premium warehouses. The premiums are monthly contracts going out to 15 months and settling on the third Wednesday of each contract month. The contract is also settled net of the Free on Truck (FoT) fee charged by warehouses to load metal on to trucks. s, in conjunction with our established contract, are designed to provide the aluminium community with the tools to hedge both their global LME price and regional premium exposures. s 1. Current LME Aluminium contract 2. With LME premium contract LME standard contract LME standard contract LME premium contract Queue related Non-queue related Buyer $1,551 $1,551 $174 $1,725 Warehouse reforms Queues will fall over time Queue-based premiums will fall accordingly Driven by market supply / demand factors e.g. Location Shape, brand, quality FoT charge contracts Enabling price risk management for queue-related premiums (whilst they exist) and non-queue based premiums Seller LME May be queued (e.g. Detroit / Vlissingen) LME regional premium Not in queue In relevant region (e.g. Baltimore for North America)

4 The buyer provides an and the premium as agreed at contract formation, less the premium aluminium FoT charge. The seller provides an in the designated region. The buyer receives a premium and the seller receives the agreed premium and a standard. If either party of the premium settlement transaction does not wish to provide or receive a standard, this can be achieved through a parallel trade in the global contract as described in the following example: An example Member A owns a premium he wants to sell to obtain the full value of the Trades two parallel contracts with the same settlement date Short LME premium contract Short regular LME contract Settles in the following way Delivers the premium contract and receives a standard plus representing the agreed premium Member A then delivers the standard received and receives representing the agreed LME price 1. Regular LME trade 2. trade A. Member with short position Provide standard Receive (LME price) Provide premium Recieve standard Receive (premium) LME Collect and Deliver and Collect and Deliver and B. Member with long position Provide (LME price) Receive standard Provide standard Provide (premium) Receive premium

5 Contract specifications Contract specification Description Contract names US West-Europe East-Asia South-East Asia Contract codes AN AW AE AS Regions Midwest and South US regions (as per US Census Bureau) Western Europe (as per UN Geoscheme M49 classification) Eastern Asia (as per UN Geoscheme M49 classification) South-Eastern Asia (as per UN Geoscheme M49 classification) Underlying metal Lot size Prompt dates Maturity months Price quotation Clearable currencies Position limits High-grade primary aluminium premium in the designated region 25 tonnes Third Wednesday of each maturity month, subject to trading regulations Monthly out to 15 months US dollars per tonne US dollars An appropriate position management regime will be implemented Tick sizes to follow the main contract: Minimum price fluctuation (tick size) per tonne Last trading day and time Settlement type Trading venues Outrights Ring: LMEselect: Inter-office: $0.50 $0.50 Carries Ring: LMEselect: Inter-office: By (London time) two business days before the third Wednesday of the contract month trading in the expiring contract Physically delivered Seller provides: in the designated region Buyer provides: Any, PLUS the premium as agreed at contract formation, LESS the premium aluminium FoT charge at the warehouse where the is delivered Ring, LMEselect, inter-office telephone Trading hours Ring: LMEselect: Inter-office: Five minutes for all regions at end of Ring 2 for Official Prices and Afternoon Kerb for Closing Prices London local time 24 hours a day Margining Initial and contingent variation margins applied per LME Clear risk management parameters

6 The London Metal Exchange (the LME ), The London Metal Exchange logo is a registered trademark of The London Metal Exchange. All rights reserved. All information contained within this document (the Information ) is provided for reference purposes only. While the LME endeavours to ensure the accuracy, reliability and completeness of the Information, neither the LME, nor any of its affiliates makes any y or representation, express or implied, or accepts any responsibility or liability for, the accuracy, completeness, reliability or suitability of the Information for any particular purpose. The LME accepts no liability whatsoever to any person for any loss or damage arising from any inaccuracy or omission in the Information or from any consequence, decision, action or non-action based on or in reliance upon the Information. The Information does not, and is not intended to, constitute investment advice, commentary or a recommendation to make any investment decision. The LME is not acting for any person to whom it has provided the Information. Persons receiving the Information are not clients of the LME and accordingly the LME is not responsible for providing any such persons with regulatory or other protections. All persons in receipt of the Information should obtain independent investment, legal, tax and other relevant advice before making any decisions based on the Information. LME contracts may only be offered or sold to United States foreign futures and options customers by firms registered with the Commodity Futures Trading Commission (CFTC), or firms who are permitted to solicit and accept money from US futures and options customers for trading on the LME pursuant to CFTC rule V1.0/1016/WPB THE LONDON METAL EXCHANGE 10 Finsbury Square, London EC2A 1AJ Tel +44 (0)