The London Metal Exchange held a seminar with representatives of the three big U.S. automakers to help galvanize support for its newest creation, an aluminum alloy contract set to make its debut in March.
In a day-long seminar in Dearborn, Mich., top LME officials and a lineup of expert guest speakers pitched the new trading instrument to representatives of the automakers and scores of aluminum industry players from across the United States.
The speakers, led by LME Chief Executive Simon Heale, said the aluminum alloy contract would lend transparency to pricing in the volatile market for A380.1-grade material, used by U.S. automakers to make engine blocks, cylinder heads, manifolds, transmissions and other car components.
In the words of Barry Jones, chairman of the LME aluminum committee, the contract which will start trading March 4, is also an ``ideal risk management tool,'' since it allows consumers or hedgers to fix forward prices for aluminum alloy.
Kevin Moore, head of worldwide aluminum purchasing for General Motors Corp., told the seminar prices for the secondary product -- which is produced more cheaply than primary aluminum since it reuses scrap metal -- is something the world's No. 1 automaker would ideally like to lock in for up to 10 years at a time.
The auto industry is one of the leading consumers of aluminum and aluminum alloy in the United States and usage is expected to climb sharply this decade, as engineers continue developing lighter, more fuel-efficient vehicles.
Virtually all of the speakers at the seminar said there were concerns about the liquidity of the new contract, however.
Formally known as the North American Special Aluminum Alloy Contract, it is the LME's first regional contract, as opposed to its usual global metals contracts, and the narrow focus has raised obvious concerns about its viability.
The U.S. auto industry has largely steered clear of the LME's first aluminum alloy contract, which has had limited success in Europe but allows for delivery of some incompatible grades used overseas.
Heale conceded that the new aluminum alloy contract will never rival the LME's primary aluminum contract, which together with copper accounts for up to 60 percent of the LME's trading volume.