Last year proved to be an important phase of growth for Aluminum futures and Aluminum (ALI) product offerings. Spurred by the globalization of the Aluminum warehousing network in 2018, our Aluminum futures and options are emerging as a viable hedging alternative to traditional global aluminum markets.
Surging volumes and open interest
Average daily volume (ADV) in Aluminum futures increased by over 190% YoY, and open interest in the contract has increased by more than 391% YoY.
Record volume days of over 5,000 contracts occurred on 16 separate occasions, with a high-water mark of 7,952 lots traded on Dec 12, 2022. Open interest in the contract also reached a record high of 1,601 on Dec 12, 2022.
Trading activity continued into year-end as ADV remained over 2,000 contracts for four consecutive months to end the year. At 2,659 contracts, July stands as the record-high monthly ADV since the contract was globalized.
Public acknowledgement and support of CME Group Aluminum
In support of ALI attaining the record levels of volume and open interest, some market participants publicly acknowledged the growth and efforts put forth by CME Group.
CME Group Announces Record Volume as Participation in Aluminum Futures Accelerates - CME Group
"Participation in CME Group's aluminum futures market has grown considerably this year, offering manufacturers and distributors another viable tool to manage their exposure to aluminum prices," said Andy Massey, Vice President of Metals, Procurement and Transportation of U.S.-based Bonnell Aluminum. "Bonnell Aluminum has recently begun using CME Group contracts as a hedging tool to manage underlying aluminum price risk, and we will also be referencing CME Group's Aluminum Futures prices in our 2023 contracts for critical infrastructure markets. We appreciate the efforts by CME Group to further build these markets for the long-term health of our industry."
"CME Group provides efficient and orderly markets, which market participants depend on to manage their risk effectively," said Steven List, Managing Director of Trading at AlphaSimplex. "The recent growth in CME Group's Aluminum markets is a key milestone, offering more sources of liquidity to metals markets participants."
Marex expands client access to CME Group Aluminum Futures
In response to client demand, Marex announced they were to expand its clients’ access to the CME Group Base Metals markets, beginning with ALI futures.
CME Group and Marex to Expand Client Access to CME Group Aluminum Futures - CME Group
"Expanding into CME Group's Aluminum markets responds directly to demand from our clients for access to alternative markets, but also aligns with our strategy to build a more global, technology-focused presence, which will better serve our client needs now and into the future," said Simon van den Born, President at Marex. "To complement the market access, we will also expand our research and markets coverage to include CME Group's Aluminum and other base metals markets. This supports CME Group's efforts to create a more robust marketplace that benefits the entire industry."
Platts begins publishing COMEX Aluminum prices
On November 15, 2022, Platts, part of S&P Global Commodity Insights, added COMEX Aluminum prices to its real-time data service and daily publication.
The first four contract months are being published in Platts Metals Daily and Platts Metals Alert as well in the Platts PricePoint database under the following codes:
Aluminum (ALI) spot CMALI01
Aluminum (ALI) Month 2 CMALI02
Aluminum (ALI) Month 3 CMALI03
Aluminum (ALI) Month 4 CMALI04
Robust on-screen markets and block trading capabilities
Transparent, electronic markets allow participants to execute their trades swiftly and confidently through CME Globex.
Block trades are available through the brokered market and for submission through CME ClearPort.
Attracting more participants
The number of traders participating in the CME Group Aluminum futures market has continued to expand with more than double the number of traders in 2022 (357 traders) compared to 2021 (138 traders). This increase has been one of the driving factors responsible for increased volume and open interest.
Launch of the Aluminum option contract
In 2022, CME Group launched the Aluminum option contract (AX). Available to trade electronically via CME Globex, or bilaterally negotiated and submitted as block trades through CME ClearPort, the Aluminum option contract provides a flexible alternative for managing aluminum price risk.
The first Aluminum option trades occurred in September 2022. Since then, open interest in the contract has peaked at 674 contracts with the average daily open interest surpassing 400 contracts.
CME Group Aluminum Auction
In 2021, the first electronic auction of aluminum based on Aluminum futures (ALI) was held on the CME Group Aluminum Auction platform. Four aluminum auctions have been held on the platform in 2022, two of which have resulted in transactions.
The Aluminum Auction supports established aluminum premium markets by providing participants the ability to anonymously transact physical metal in the spot market via their clearing member.
Aluminum premiums
Financially settled aluminum premiums offered by CME Group continue to be utilized to hedge regional price exposure. Whether it is to manage risk related to conflict in Europe or delivery constraints in North America, CME Group offers a premium contract to fulfill your hedging requirements.
Aluminum premium contract offerings by CME Group include:
- Aluminum MW U.S. Transaction Premium (Platts) (25MT) futures (AUP)
- Aluminium European Premium Duty-Unpaid (Metal Bulletin) futures (AEP)
- Aluminium European Premium Duty-Paid (Metal Bulletin) futures (EDP)
- Aluminum Japan Premium (Platts) futures (MJP)
Volumes across AUP, AEP, EDP, and MJP had been consistent through Q1 2022, but surged to combined ADV over 1,000 contracts in the second half of the year. Notably, open interest in EDP has established a new record high level exceeding 20,600 contracts on December 30, 2022.
Margin offsets
CME Group offers cost-effective margin requirement offsets between Aluminum futures and other Metals products as well as CME Group products beyond Metals. For example, the current margin offset between COMEX Aluminum futures and COMEX Copper futures is 40%.
Inters / Intex / Supers for Performance Bonds | Margins (cmegroup.com)
Introduced in July, margin offsets are now offered for Aluminum butterfly spread trades.
Expansion of CME Group Aluminum global warehousing network
The CME Group Aluminum warehousing network welcomed Grafton Warehouse Services (UK) Limited as a new service provider.
Grafton joins an already robust global network of warehousing companies, which includes C. Steinweg, Access World, Kodiak Resources, PGS, and Henry Bath, operating in the following locations:
- U.S: Owensboro, KY; New Orleans, LA; Toledo, OH
- EMEA: Rotterdam, Netherlands; Bilbao, Spain; Antwerp, Belgium
- APAC: Johor, Malaysia; Port Klang, Malaysia; Singapore
Conclusion
CME Group Aluminum products are becoming increasingly relevant amongst the trading community. Aluminum futures and option contracts, Aluminum Premium contracts, the Aluminum Auction offering, and margin offsets are providing participants with the confidence needed to successfully execute their trading strategies in a transparent and cost-efficient manner.
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