London Metal Exchange to launch new range of aluminum contracts

The London Metal Exchange on Monday said it is launching a new range of aluminum contracts to allow users to protect themselves against rising regional charges that occur in addition to the cost of the metal.

The decision is part of a broader strategy by the LME to keep a handle on costs for market participants and follows a rule change in April to increase the rate at which metal is moved out of its warehouses.

"The premium contract provides a straightforward mechanism for buyers to source readily accessible material in a given region, and for sellers to receive fair value for selling such material," the LME said in a statement.

Warehouses will opt-in to the system to issue these premium contracts and only warehouses without any queues will be eligible.

If a queue develops at participating warehouses, it will have to stop issuing premiums and resolve the backlog. The LME said warehouses would be required to either move out 1,000 tons of metal of a day, or else 3% of its total stock.

The stipulation comes in the wake of market discontent over long waiting times for aluminum delivery at some of the LME's warehouses, which led to premiums spiking to record levels.

Queues have now been eliminated at all but two of the LME's worst-affected warehouses. However, some buyers were previously forced to wait more than two years to take possession of their metal.

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