ALUMINIUM: The second producer generation

The emergence of Middle Eastern aluminium companies as serious global suppliers brought a new generation of producers to the London Metal Exchange aluminium contract – one that was far more amenable to it than the previous generation had been.

Aluminium producers were not in favour of the LME contract during the first few years following its launch in 1978, and many lost heavily in the trader-led squeeze of 1988 that saw the cash-to-three-months spread rip out into a backwardation of about $1,200 per tonne. At the contract’s launch, major producers did not want to give up the control over pricing they held under the old Alcoa/Alcan pricing model. But there was another reason that they were not prepared to commit to the new exchange. “It wasn’t just that producers were resistant [to the LME contract], it’s that they didn’t understand it,” Malcolm McHale, president of the Federation of European Aluminium Consumers and special projects manager at Dubal, told Metal Bulletin. “There was a lack of understanding at the senior management level and a lack of understanding at board level,” he added. “The people who understood the mechanism...

Published

Jethro Wookey

May 28, 2015

16:15 GMT

London