44,000 pounds of aluminum
Open outcry: 7:50 A.M. to 2:10 P.M.; NYMEX ACCESS¨: 4 P.M. to 7:40 A.M.
Commencing with the August 1999 contract, followed by the next 25 consecutive calendar months
Exchange-licensed warehouses in Kentucky and Tennessee
Primary aluminum meeting all the requirements of the P1020A designation or primary aluminum of 99.7% purity with a maximum iron content of .20% and a maximum silicon content of .10%
Low-profile sows or T-bars weighing 600 to 1,735 pounds
Last Trading Day
The third to last business day of the delivery month
Minimum Price Quotation
$.05 per pound
Maximum Daily Price Fluctuation
$.20 per pound above or below the previous day’s settlement price, unless one of the two closest delivery month’s trades at or is offered or bid for two minutes at the limit. In that case, after a 15-minute halt, the market will reopen with the limits expanded by $.20 on either side of the previous limit. This can happen no more than twice in a session for a maximum $.60 limit.
NORTH AMERICAN ALUMINUM PRICES
The New York Mercantile Exchange, the worldÕs largest physical commodity futures exchange, is about to shed some light on one of the few remaining gray areas of pricing in the global world of commodities trading Ð the North American aluminum business. As not only the worldÕs most liquid, but also the safest forum for trading key strategic commodities, the New York Mercantile Exchange is committed to bringing to the North American aluminum market the same level of service in risk management and price transparency as it has so successfully brought to other metals markets, as well as the oil, natural gas, and electricity industries.
Currently, there is a major industrial commodity price thatÕs not quoted daily, let alone hourly: the price of North American aluminum. Pricing information on the North American aluminum industry, the worldÕs largest and most productive, remains hard to find.
Prices for international aluminum markets are available daily out of London. Price information for the U.S. regional market, however, where the aluminum industry each year produces some $35 billion worth of products and exports, is limited to a weekly transactional price reported by an industry trade publication with comparisons to the overseas market.
It is, as many in the aluminum industry admit, an unsatisfactory way to run a major business. It is, as many contend in other industries dependent on aluminum products, a frustrating way to do business. It is, however, about to become the old way of doing business.
ALUMINUM PRICE DISCOVERY
The New York Mercantile Exchange, the worldÕs largest physical commodities exchange, has designed and constructed futures and options contracts that will provide instantaneous price dissemination with publicly available information on trading volume and open interest. The Exchange has spent more than 18 months working with North American aluminum producers, consumers, and dealers designing these contracts to closely parallel the nature of the industryÕs physical business.
While futures are typically employed as risk management instruments to hedge physical market positions, provisions for physical delivery help to ensure that the futures market price is consistent with or converges with the aluminum cash market. Futures allow buyers to assess their costs in advance of purchases and sellers to value their inventory in advance of sales.
Based on delivery in the North American midwest market, the new futures contract begins trading on the ExchangeÕs COMEX Division on May 14, 1999, and options begin trading July 23. Delivery for registered contracts will be licensed Exchange warehouses in Kentucky and Tennessee.
For an industry whose raw metal materials cost it almost $23 billion in 1996 alone, price risk management is critical. As with other commodity markets, the aluminum market entails risks for everyone from manufacturers to smelter operators to secondary users. Aluminum futures are expected to offer economical and efficient ways to manage both upside and downside price risks as both futures and options contracts provide benchmark pricing for all aluminum-based products changing hands in North America.
THREE KEY OBJECTIVES UNDERPIN THE NEW CONTRACT
1. Offering far greater price transparency and more liquidity than any other aluminum market.
Price discovery arises from the open outcry trading on the floor of the New York Mercantile Exchange, which will run nonstop for six hours and 20 minutes. Transaction prices from the Exchange are transmitted within seconds to some 65,000 information vendor screens around the world. Price discovery is also generated by trading on NYMEX ACCESSSM, the ExchangeÕs after-hours electronic trading platform, where North American aluminum will be traded through the night following the close of floor trading, giving dealers and producers in Asia and Europe a chance to trade during their normal business hours.
Overall, the new contract will be accessible some 22 hours per day. In contrast, aluminum trading in London takes place in limited open outcry sessions no longer than five minutes apiece. The rest of the time, dealers and brokers quote prices independently of each other.
2. Supplying a contract tailored for the North American market.
Midwest delivery does away with any basis price risk associated with an overseas contract.
3. Providing a contract unit size that lends itself to arbitrage if conditions warrant.
Five New York Mercantile Exchange aluminum contracts are a nearly exact match for four overseas contracts. The New York Mercantile Exchange futures and options contracts are expected to develop into a liquid and efficient marketplace, bringing to aluminum producers and consumers alike the reliable and continuous price discovery and risk management mechanism currently lacking in North America.
To ensure sufficient liquidity, the Exchange has established a specialist market maker program. Somewhat similar in concept to the long-established program on various stock exchanges, but far different in execution, the specialist market maker on the New York Mercantile Exchange will not have sole responsibility for making a liquid market in North American aluminum. Instead, the specialist will be one of any number of traders buying and selling the contract, but will step in to ensure liquidity when and if it becomes necessary.
Futures trading on the New York Mercantile Exchange, established in 1872, has brought price transparency to commodities ranging from gold to crude oil to electricity. Because the New York Mercantile Exchange guarantees every trade by acting through its clearinghouse as the counterparty, there is no counterparty credit risk.
For the first time, the North American aluminum industry and its customers Ð from packaging to transportation to building and construction Ñ will have a futures contract designed specifically for their use in this regional market. They will have, at last, a contract that helps to solve the mystery of aluminum pricing and offers a North American pricing benchmark that equals the ExchangeÕs copper contract in reliability, as it provides risk management capability the industry has long sought.
There will be no safer, more cost-efficient risk management tool available for the worldÕs largest aluminum industry. For more information about the New York Mercantile Exchange COMEX Division North American aluminum futures and options contracts, contact the Exchange at (212) 299-2329.