Aluminum is the most abundantly found metallic element in the Earth’s crust and is the most widely used non-ferrous metal. It is used by many different industries ‒ including transportation, construction, electrical, and household consumer goods. Aluminum is 100% recyclable, and nearly 75% of all aluminum ever produced is still in use today.
The Aluminum (ALI) futures contract, from CME Group, provides the ability to hedge price exposure along the entire supply chain for the aluminum industry and its associated industries.
Each physically deliverable Aluminum contract represents 25 metric tons of deliverable aluminum. The minimum price increment of the contract is $0.25 per metric ton, making the value of one tick equivalent to $6.25. Aluminum futures are available to trade electronically on CME Globex nearly 24 hours per day. They can also be traded bilaterally and cleared through CME Clearport.
As a physically deliverable product, aluminum is supported by a global network of warehouses that serve as storage and delivery points across the globe in North America, Asia, and Europe.
When trading Aluminum futures, one needs to be aware of the warrant and delivery process.
First, let’s discuss Aluminum warrants. Upon physical delivery, the seller of the futures contract, must deliver aluminum conforming to contract specifications. The metal must be delivered to and stored in one of the Exchange-approved warehouses. Upon receipt of the metal, the owner of the metal can choose to register the metal with the Exchange. This process is often referred to as placing the metal on warrant.
A warrant is a legal document of title. At CME Group, these warrants are created and stored electronically. The warrant is created by the warehouse and is held in the Exchange’s system in the name of the metal owner’s clearing firm and contains all the relevant information related to the metal held in storage.
This warrant is used as the means of delivery on the Exchange for the physically deliverable Base Metals futures contracts.
The delivery process takes three days to complete. The first day is delivery intention day, the second is invoice day, and the third is delivery day.
Delivery intention day is when the seller of the futures contract starts the delivery process by providing a formal notice of intention to deliver to the Clearing House. On day two, invoices are issued by the Clearing House to the buyer and the seller.
Invoices include the brand, warrant number, weight, and additional details of the transaction.
On the final day, delivery day, the seller receives an electronic transfer of funds, and the buyer receives an electronic warrant in their inventory in delivery plus. For Aluminum futures, delivery can be made on any Exchange business day, during the specified contract month. The final settlement price is set by the Exchange, on the day the seller provided the notice of intent.
When trading Aluminum futures, it’s important to understand both the contract specifications along with the warrant and delivery process. Aluminum futures provide those involved in the aluminum industry and beyond with an accessible, transparent, and secure way to manage the risks of production, supply, and delivery of aluminum.