Primary Aluminium Futures, A Major Contract On LME
The primary aluminium futures contract is the largest of these contracts traded on the London Metal Exchange (LME). As a commodity exchange the LME specialises in non-ferrous metals, and it is probably not surprising that the most heavily produced and consumed metal in the world, is the most traded here.
High grade primary aluminium was first traded on the London Metal Exchange in 1978. With world production of this metal at about 27,700,000 tonnes per annum (2003 figures), primary aluminium futures look set to continue dominating the exchange.
You can now subscribe to the free Commodity Universe Ezine below, and get the latest articles on the commodity sector . Just your first name and email. It's as easy as 1-2-3! How strange that before the discovery of electrolysis, where the metal oxide alumina is reduced to the metal, aluminum was even considered a precious metal.
This low density, malleable metal has a very high conductivity and is resistant to rust, so it has a broad spectrum of applications worldwide.
Trading Primary Aluminium Futures
LME high grade primary aluminium futures is a physical contract quoted in US dollars.
A potential trader would benefit from a transparent process and could trade with confidence in the clearing system.
Either you would use the traditional open cry system which is still popular among participants, or the modern electronic trading platform.
With the open cry method of trading there is a number of short sessions lasting about 5 minutes, together with 2 longer sessions.
The overall session is between the hours of 11.45am and 5.00 pm , London time, Monday to Friday. If you prefer to use the alternative of an electronic trading platform, this is open between 01.00 am and 7.00 pm, London time on weekdays.
To use this method you would first have to become a client of one of the LME member firms, who operate the electronic trading platform.
You can get the primary aluminium futures prices either in real time or delayed through a data distributor or using the LME Live platform, which is a paid subscription service.
Your third option would be to use a 24-hour telephone service provided by a member firm.
Contracts are traded in 25 tonnes either as ingots (12-26 kg each) or as T-bars or sows. The aluminium must be equal to or greater than 99.7% purity.
For the longer term 7 month to 63 month primary aluminium, delivery is every third Wednesday.
Contracts can be cleared in Japanese Yen, US Dollars, GB Pounds and Euros.
Applications and Future Trends
Against a backgorund of strong demand for natural resources, aluminium is proving to be no exception.
A recent Value and Growth Report by the mining giant, Rio Tinto, shows that demand for aluminium, along with copper and iron ore, will remain very robust going forward. This is based on projections for population growth in urban areas in developing countries over the next 15 years or so.
The global primary aluminium production profile shows Europe contributing 33%, America 29% and Asia 24%.
China and India are likely to affect these percentages over the next decade or so due to their above average growth rates.
And we can also expect to see continued strong growth in the market for secondary aluminium alloy, particularly with a growing awareness of the environmental benefits of recycling.
Again the BRIC countries (Brazil, Russia, India and China) will be consuming large amounts of world production, given the infrastructure development going on in those countries.
As part of the industrial, non-ferrous group of metals which feature in commodity indexes, primary aluminium futures will play a notable role in signalling the strength of world commodity markets in general and metal markets in particular going forward.
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