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Some 7 million tonnes of recycled aluminium is currently produced annually throughout the world. Much of this is produced as varying grades of aluminium alloy for specialist use, particularly for diecasting products for the automotive industry.
New techniques enabling secondary metal to be used in place of primary, the greater pressure for recycled products to protect natural resources and the ever growing demand from the automotive industry will almost certainly see secondary production increase in the future.
In 1991 following extensive consultation with the industry, the LME introduced futures and traded options contracts for aluminium alloy and traded average price options (TAPOs) were added in October 2000. These contracts were specifically designed to provide a more appropriate hedging medium and a more realistic reference price basis for the secondary aluminium industry than was previously offered through the primary aluminium contract.
LME Aluminium Alloy Futures Contract Specification
| Contract |
Aluminium Alloy conforming to one of the specifications below:
A380.1, 226 or D12S |
| Lot size |
20 tonnes (with a tolerance of +/- 2%) |
| Form |
1. Ingots
2. Small sows (four-way entry sows)
3. Large sows (low profile sows)
4. T-bars |
| Weight |
1. 4 -25 kgs pieceweight. 500 -1000kgs bundleweight
2. 408 - 590 kgs pieceweight.
3. 300 - 726 kgs pieceweight.
4. 408 - 726 kgs pieceweight. |
| Delivery dates |
Daily from cash to 3 months (first prompt date two working days from cash). Then every Wednesday from 3 months to 6 months. Then every third Wednesday from 7 months out to 27 months forward. |
| Quotation |
US dollars per tonne |
| Minimum Price Movement |
Ring - Outright $0.50, Carries $0.01
LME Select - Outright $0.25, Carries $0.01
Inter-office - Outright/Carries $0.01 |
| Clearable currencies |
US dollar; Japanese yen; sterling; euro |
LME Aluminium Alloy Options Contract Specification
| Delivery dates |
Monthly from the first month out to 27 months |
| Value date |
The third Wednesday of the prompt month |
| Premium Quotation |
The first Wednesday of the prompt month |
| Exercise date |
US dollars per tonne |
| *Strike price |
$25 gradations for strikes from US$25 to US$3975
$50 gradations for strikes form US$4000 to US$7950
$100 gradations for all strikes over $US8000 |
*Strike price gradations and tick size for premiums available in all clearable currencies.
LME Aluminium Alloy Traded Average Price Options Contract Specification
| Contract date |
The business day on which the contract is traded |
| Contract period |
Calendar months up to 15, 27 or 63 months forward (in line with the underlying futures contracts). The inclusive period between the first business day and the last business day of the traded month. |
| Option type |
Calls & puts based on the monthly average settlement price (MASP) |
| Currency & strike price |
US dollars :$1 gradations |
| Premium tick size |
0.01 USD (one cent)
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| Premium payment |
Next business day after contract is traded |
| Settlement date |
Settlement is two business days after exercise
The futures trades settle as per LME rules & regulations. |
Access the special contract rules for metals using the LME online rulebook.
The aluminium alloy contract differs from other metal contract, because there are many different grades of aluminium alloy. Consequently, the LME registered the 3 most commonly used and internationally recognised grades as good delivery in the contract specification, namely
A380.1 – North America: 226 – Europe: D12S – Japan
Since the contract’s introduction it has seen steady increases in turnovers, where in 2001 combined futures and traded options turnovers totalled nearly 825,000 lots, equivalent to some 16,500,000 tonnes. Increasingly, industry has recognised LME official prices as the internationally accepted price reference. This development together with the increasing demand and the growing requirement for long term fixed pricing, demonstrate the long term value of this contract.
The LME futures and traded options contracts provide the optimum combination of physical contract and risk management mechanism for the secondary aluminium industry today.
As a risk management mechanism, the LME aluminium alloy contract offers transparency with the security of clearing, stability through regulation, and a 24 hour global trading structure that are the hallmarks of the world’s leading non-ferrous metal exchange.
The LME has long acknowledged the global nature of the industry and has developed an international network of warehouses in Europe, Asia and the US for the delivery and take-up of the metal. These warehouses are approved on the basis of special requirements ensuring they are appropriate for the storage of aluminium alloy. In addition it has approved brands from around the world which include all major producing companies.
LME contracts may only be offered or sold to United States foreign futures and options customers by firms registered with the Commodity Futures Trading Commission (CFTC), or firms who are permitted to solicit and accept money from US foreign futures and options customers for trading on the LME pursuant to CFTC Rule 30.10.
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