LME Aluminum Contract Making Gains

Since last year’s Institute of Scrap Recycling Industries Inc. (ISRI) Commodity Roundtables, the London Metal Exchange (LME) has introduced its new aluminum contract tailored for the North American market.

The North American Special Aluminum Alloy Contract (NASAAC) was a topic of discussion at this year’s event, which took place last week in Chicago. Some recyclers and secondary smelter operators are grumbling that NASAAC favors larger aluminum makers and consumers, while LME vice president of operations Neil Banks gave a presentation to update attendees on the status of the contract.

According to Banks, trading on the contract became available in March, with the first LME delivery taking place in June. Warehouses have been set up in Baltimore, Chicago, Detroit and St. Louis. The contract was created in part to respond to criticisms that the traditional aluminum alloys contract was too Euro-centric.

“Trading started, as one would expect, pretty gently,” said Banks. “But there has been a substantial build-up in the last couple months in particular—even in August, which is traditionally a slow month.”

In NASAAC’s first six months, 1.6 million tons of aluminum have been traded on the contract, worth $1.8 billion. There are 79 brands of aluminum made by several different companies that have been approved to trade under the contract, said Banks.

Banks noted that there had been some controversy over whether to allow T-bars to be traded, along with ingots and sows. “Some die casters can’t use them and didn’t think it was appropriate. Others say it will add to the contract’s volume and liquidity to include T-bars.” The LME board ultimately approved the addition of T-bars, and two types have been authorized for trading.

Chemistry specifications have been another bone of contention. “Some feel the lack of minimums of some [tramp] elements is detrimental for the user,” said Banks. “We need evidence and input from the industry to make a decision about this.”

Banks credited Wabash Alloys, Wabash, Ind., Imco Recycling, Irving, Texas, and General Motors, Detroit, for their support of the contract both initially and since trading began.

Some Roundtable attendees are concerned that the contract is beginning to favor the larger interests of companies such as Alcoa and General Motors to the disadvantage of smaller aluminum consumers and producers.

Banks, though, said the industry support has been gratifying. “There is huge industry support for the concept of this contract,” he remarked. “It’s not as has occurred in the past with some commodities, where there was an over-the-dead-bodies-of-producers attitude. We believe this is a contract whose time has come. We will seek to fine-tune it and to make sure it stays relevant.”