The top US derivatives regulator has put the structure of American aluminum pricing itself under review. Commodity Futures Trading Commission Chairman Michael Selig told the Beer Institute’s annual meeting on Friday that he has directed his global markets team to examine domestic aluminum pricing mechanisms and develop concrete reform options, calling it one of his top priorities.
The arithmetic is the complaint. US buyers pay the London Metal Exchange benchmark plus the Midwest premium, an assessment published by S&P Global that covers delivery into the United States. Selig put the premium at about 1.10 dollars a pound, against an LME benchmark of 1.40 dollars a pound, for an all in US price of approximately 2.50 dollars a pound, roughly 75 percent on top of the benchmark.
Selig argued the LME contract’s cheapest to deliver structure can price metal in the lowest cost eligible location rather than where US buyers actually take delivery, so American manufacturers can face prices incorporating costs that do not reflect their supply chains. The CFTC does not set commodity prices, but Selig said the agency is exploring US based futures contracts tied to physical delivery for both primary and recycled aluminum, and a derivatives market structure built specifically for recycled metal.
Platts, which publishes the premium assessment, has said the daily price is based on actual sales, reflects the cost of supplying aluminum to the US, and follows a publicly available, rigorously tested methodology. The review now sets up a direct contest between that defense and a regulator who told manufacturers, in his words, that the United States must define its own destiny on pricing and warehousing.