The London Metal Exchange, the world’s largest industrial metals marketplace, wants to introduce an aluminum premium contract as early as the end of this year, said Chief Executive Officer Garry Jones.
The contract will be 25 metric tons in size and will involve a swap of warrants, or bearer documents for a specific lot of metal, according to a draft of specifications seen by Bloomberg. Consumers usually pay a premium to the exchange price for metal in specific locations.
“We hope it could be towards the end of this year or beginning of next year,” Jones said in an interview in Santiago yesterday. “We’ve got the specification, and then we have to get a regulatory approval, and then we have to make some system changes. It normally takes at least six months to go through all those processes.”
Aluminum premiums quadrupled in the U.S. in the past five years as financing transactions and waits to get metal from some LME-tracked warehouses kept supplies unavailable. Users including MillerCoors LLC, the beermaker, said the wait was inflating costs. The LME shelved part of a plan to ease backlogs after a U.K. judge last month ruled the consultation process “unfair and unlawful” in a lawsuit brought by United Co. Rusal, the world’s biggest producer.
The exchange remains committed to addressing long waits and is taking legal advice on the fastest way to reduce lines, it said yesterday in a notice to members. It may choose to appeal or run another consultation.
“Within a few months we will either have appealed or we’ll be reconsulting,” Jones said. If it opts for a new consultation, the process should take less time than the previous one, which lasted three months.
Aluminum for delivery in three months on the LME added as much as 0.5 percent to $1,825.50 a ton today. The metal rose 3.6 percent last week and is up 1.3 percent this year.
The LME was scheduled April 1 to introduce a rule obliging warehouse companies with waits longer than 50 calendar days to deliver more metal than they take in. Judge Stephen Phillips ordered a review of the LME consultation in a written judgment handed down in Manchester, England, on March 27.
“We are not just disappointed we lost,” Jones said. “We’re really surprised we lost. We are not happy about it. We feel we lost on technicality.”
The LME is consulting the market on the future of its open outcry trading floor, known as the ring, Jones said. A decision should be reached in the third quarter.
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