Let’s face it, the world runs on money. No matter your industry, the goal is always to buy low and sell high. The aluminum industry is no different. This post is going to focus on the important industry terms regarding how pricing in the aluminum industry works. We must start with where aluminum market pricing comes from: the London Metal Exchange.
The London Metal Exchange, or LME, is the world’s largest market on futures contracts and options for base and miscellaneous metals. What the New York Stock Exchange is to various companies around the world in terms of name recognition, the London Metal Exchange is the most important market exchange company in the world of metals. Not only does the LME offer contracts with daily expiry rates of up to three months for the trade date, weekly contracts up to six months of the trade date and monthly contracts up to 123 months of the trade date, it also offers worldwide reference pricing, hedging, allows for the option of cash trading and the option of physical delivery to settle contracts.
Recently the London Metal Exchange was purchased by Hong Kong Exchanges and Clearing for a price of £1.4 billion in 2012. However, the LME has a long running history. Let’s dive in.
How the London Metal Exchange Got Started
Though founded in 1877, the London Metal Exchange has origins going back all the way to 1571 when the Royal Exchange of London was opened. In a less structured environment than the LME sees today, trades were conducted in London coffee shops using drawn up chalk rings on the coffee shop floor.
While aluminum plays a big part on the LME now, that wasn’t always the case. Aluminum was first introduced to the London Metal Exchange for trades in 1978. Initially, copper was the only traded metal on the LME. By 1920, lead and zinc were added under an official trading status designation. After aluminum was added in ‘78, nickel followed in ‘79, tin in ‘89, aluminum alloy in ‘92, steel in 2008 and cobalt and molybdenum in 2010.
How Trading is Done on the LME
The London Metal Exchange uses ring trading through old methods like open-outcry, ring dealing members, and electronic trading. Open outcry is the oldest method of trading. This method involved shouting and the use of hand signals to communicate information regarding the buying and selling of orders. In fact, LME is the last exchange in all of Europe that still uses open-outcry trading as it is seen as archaic. Next, ring trading members are present in LME activity. These members hold the exclusive right to trade in the ring and are entitled to 24-hour inter-office trading. In addition, these members are authorized under the Financial Services and Markets Act 2000. Finally, electronic trading is also used by LME. This method now accounts for the majority of the total daily London Metal Exchange business transactions.
Why You Should Know What Midwest Spot Aluminum Is
In complete contrast to futures contracts, Midwest Spot Aluminum is a spot contract, which is essentially the immediate settlement of funds when buying or selling aluminum. Spot contracts account for most of the aluminum business transactions. While spot prices are immediate, they are largely dictated by the futures trading that happens on the LME.
Therefore, it’s important to understand the futures market even if you are using spot contracts to buy and sell aluminum. There are strategic advantages to buying aluminum at current prices and having delivery delayed. It saves on storage costs and mitigates efficiency killers.
Why is Midwest Spot Aluminum important to know about? Simply because Midwest Spot means specific aluminum prices for the Midwest region of the United States. Through careful monitoring of the LME charts available you can dictate current pricing and future forecast pricing for Midwest Spot Aluminum, which includes delivery of the aluminum to the Midwest region.
Why Howard Precision Should be Your Trusted Aluminum Distributor
Howard Precision Metals in the heart of the Midwest. Located in Milwaukee, Wisconsin, we are one of the most trusted distributors. Because we are a 100% aluminum distributor, our team has the materials, the knowledge and most importantly, the experience to support whatever aluminum needs you may have.
Because we are a company that believes in forward thinking and entrepreneurship, we stack our aluminum against any competitor nationwide. Why? We have state-of-the-art, custom built precision sawing machines and more capacity that any other distributor here in the Midwest. We cut orders correctly the first time and we never miss a deadline. Because we only handle aluminum and nearly every order is a cut-to-size, we have the knowledge and experience to produce precision sawn parts with consistent repeatability.
Isn’t it time you partnered with a distributor who is dedicated to tailoring their products and services to better fit your business? For more information about our capabilities or to experience our world class customer service, give us a call at (800)-444-0311 or leave us a message on our contact form. We look forward to working with you!
