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The new London Metal Exchange alumina contract will be settled in part by using data from the Fastmarkets MB index, with shared weight given to the CRU’s Alumina price index.

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The daily FOB Australia alumina index is a suitable choice for the exchange Fastmarkets say since it went from a weekly to a daily basis just over a year ago.  With increasing volatility and interest the move is a bid to give a more reflective pricing.

The London Metal Exchange (LME) will launch three new cash-settled derivative contracts settled against Fastmarkets MB's aluminium, alumina and cobalt prices, effective from March 11, 2019.

The LME will offer these hedging mechanisms settled against the following Fastmarkets MB prices:

  1. Cobalt standard-grade, in-warehouse, free market $ per lb in warehouse
  2. Alumina Index Fob Australia $ per tonne (Fastmarkets MB/CRU basket)
  3. Aluminium P1020A, in-warehouse Rotterdam duty-unpaid, spot low-high, $/tonne 

The final settlement price for the respective contracts will be an arithmetic average of the applicable Fastmarkets MB price listed above in the expiring contract month.

"We are delighted to announce Fastmarkets MB as one of the index providers for our new cash-settled futures contracts, which is the next step in delivering our new products strategy and an important part of our commitment to deliver greater user choice," Robin Martin, head of market development for LME Group, said.

The Alumina index achieved type 1 IOSCO assurance last year.  Fastmarkets chief executive officer Raju Daswani expressed the firm’s happiness at inclusion in the LME’s new contract and the progress the index has achieved to date. He added  “Fastmarkets’ significant presence in the LME’s alumina basket is testament to how well our index has adapted to a changing market and is increasingly referenced by the physical market since moving to daily pricing over a year ago.”

Daswani said “We look forward to working with the LME and continuing to engage with the alumina market.”

Fastmarkets’ alumina index represents a fundamental shift in price indexing for the aluminium precursor.

Initially the alumina market was figured as a percentage of the LME’s aluminium price this has developed in recent years to  the alumina market getting to being an independent index.  The index’s launch in the fall of 2010, the Fastmarkets MB’s fob Australia index hit a high of USD 703.75 per metric ton last April.  The market was impacted last spring but the mandatory curtailment at Alunorte, the world’s largest alumina refinery in Brazil.  The Brazilian state of Para recently lifted the production embargo on the Norsk Hydro ASA’s Alunorte alumina refinery. Furthermore US government sanctions on major alumina supplier UC Rusal, and labor difficulties at Alcoa’s alumina operations in Australia also led to turmoil. 

Source: LME, Reuters

From The TradersCommunity Research Desk

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