Rusal to offer CME-based aluminum pricing by July

United Company Rusal PLC, the world's biggest aluminum producer, plans by next month to begin offering customers the option of using CME Group Inc.'s new aluminum futures contract to set prices, a company executive said in an interview.

Rusal's use of CME futures would give a boost to the fledgling contract, which has been slow to gain traction since its launch in May. Aluminum, which is used in everything from window frames and beer cans to automotive engine blocks and air-conditioners, is primarily traded on the London Metal Exchange.

CME offered its contract as an alternative to LME's after some large consumers of aluminum complained about delays to remove metal from the LME's storage system. Daily trading volume has averaged about 100 contracts this month on CME, compared with an average 240,000 contracts traded daily on LME in May, the most recent data available.

The U.S. is currently a small but important market for Rusal. The Russian aluminum company supplies about 250,000 metric tons of aluminum to the U.S. each year, or roughly 10% of the company's exports, said Steve Hodgson, chief executive at Rusal Marketing GmbH, a unit of Rusal. He was speaking on the sidelines of the Harbor Aluminum Outlook Summit in Chicago.

Industrial aluminum users may want to use the CME contract because it better captures the cost of acquiring the metal in North America, he said. The contract reflects the outright aluminum price as well as a regional delivery fee, both of which can fluctuate. The LME's contract doesn't reflect delivery costs.

Rusal hasn't made any transactions in the new contract yet, Mr. Hodgson said, adding that warehouse owners and brokers are still being set up.

"We've had quite a few consumers express to us a desire to transact on a regional pricing basis, and the CME provides that opportunity," Mr. Hodgson said. "It's our objective to offer CME pricing from July onward, if customers are looking for that option."

Rusal primarily ships higher-value aluminum products, like extrusion billet used to make products for construction and foundry alloys used to make parts for the automotive sector and other original equipment manufacturers. Rusal last year sued the LME to prevent the implementation of new warehouse rules aimed at releasing stored metal more quickly. The company argued that the exchange conducted a flawed consultation process. A U.K. judge ruled in favor of Rusal in March. The LME has said it would appeal.

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