Futures

LME Launches New Aluminum, Scrap & Rebar Contracts

Written by Sandy Williams


The London Metal Exchange announced November 23 the launch of new ferrous and premium contracts. LME Aluminum Premiums, LME Steel Scrap and LME Steel Rebar are the first new contracts to be offered by the LME in more than five years.

The new contracts are designed to complement the existing ferrous contract for LME Steel Billet and are a response to market demand.

The new Scrap and Rebar contracts will be traded on LMEselect, allowing industry participants to reduce their risk exposure by hedging more steps in the steel production process. The contracts are cash-settled against physical Turkish scrap and rebar price indexes.

According to LME, “The combination of steel billet with our new scrap and rebar contracts delivers the optimal balance between physically-settled and cash-settled contracts. Maintaining a physically-delivered billet contract helps to ensure price convergence, and will act as the core of a suite of products which can then be cash-settled, enabling the market to trade spreads back to the billet contract. This benefits our physical customers as it allows them to hedge every step of the value chain, whilst also giving financial players the opportunity to arbitrage between different stages of the chain.

The Aluminum Premiums are physically settled and allow participants to hedge the regional “all-in” price to insure the material is available in a non-queued LME warehouses at a convenient location.

“The contracts will be traded across all LME venues, including in price-discovery sessions on the Ring, which will meet the market’s stated desire for exchange-discovered regional premium pricing,” said LME.

“Today’s announcement highlights the LME’s new approach to market engagement,” says Garry Jones, CEO of the LME. “This has been an extremely customer-focused product launch, and we have collaborated with participants throughout the metals value chain to ensure we have created contracts that people want to trade.”

More information can be found at the LME website.

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