CME to rival LME with aluminium contract launch

 
Suzie Neuwirth
CME Group, the Chicago-based derivatives exchange, plans to launch an aluminium contract that will compete with the London Metal Exchange’s product, it emerged yesterday.

Harriet Hunnable, head of metals at CME, told reporters of the company’s plans at LME week, the annual conference for the metals industry.

Chris Grams, spokesperson at CME, would not disclose a specific timeframe for the launch to City A.M. but said that “we’re quite progressed in the development of the product and we have been talking with customers along every part of the aluminium supply chain”.

Grams said that customers had come to CME saying they wanted an alternative to the existing contracts.

LME’s futures contract currently dominates the aluminium market, but it has been under fire of late.

In August, the exchange was accused by the US commodities watchdog of rigging aluminium prices by slowing deliveries of the metal to businesses.

Prices had ballooned due to a bottleneck at the warehouses.

CME’s contract will be physically deliverable and is thought to be similar to the LME product, except CME’s contract will be monthly whereas LME’s is daily.

Hong Kong Exchanges and Clearing, which bought the LME for £1.4bn last year, hired industry veteran Garry Jones as the new chief executive of the exchange in August.

CME reported a 27 per cent rise in its last quarterly profits, beating expectations, as trading jumped both at home and abroad. Net income rose to $311.2m (£193.1m) from $244.9m the previous year.

LME WEEK LOWDOWN

LME Week is the largest annual gathering of the metals industry, which takes place in London every October and usually attracts 400 to 500 attendees.

The conference is held by the London Metal Exchange, which is the longstanding home of global futures contracts for a number of metals including aluminium.

There is a day-long seminar to officially kick start the week, covering all aspects of the metal markets including the economy and global trends.

A key topic this year surrounded calls for increased transparency of trading data. There is also an annual dinner and a chairman’s reception.

More important than either the seminars or the dinner is the opportunity for the industry to network and discuss the most topical issues of the day, which this year will inevitably be the US commodities regulator’s probe into LME’s warehousing system, which was announced in August.

The event also comes as the LME attempts to reaffirm its dominant position in the market ahead of a decision on alleged manipulation of aluminium prices.

For those who attend the seminars rather than trade gossip outside, topics aside from transparency included Asian growth, demand in North America and Europe, and a debate into where the world is in the commodities super cycle.

The seminar inevitably attracts high-profile speakers, with this year’s hit list including LME’s new chief executive and industry stalwart Garry Jones, as well as Hong Kong Exchange and Clearing’s boss Charles Li, who held a Q&A session at the end of the Monday seminar.

This year’s keynote speaker was Gerald Lyons, chief economic adviser to Mayor of London Boris Johnson.

The feather in LME Week’s cap is the annual dinner, an invitation only event attended by international VIP guests and clients of the LME membership.

The event tends to hold around 2,000 guests and last year former Labour minister Peter Mandelson was the keynote speaker.

Quick to tap into a popular concept, the exchange launched LME Week Asia in May last year, just before Hong Kong Exchanges and Clearing bought the LME.

It ran again this year in June and is planned again for spring in 2014.