Asia's toluene markets feel the weight of gluts in China, India

　　The first A380 aluminum alloy futures traded July 19 at 86 cents/lb on the CME Group's contract, which is financially settled on the monthly average of the Platts US Midwest Aluminum A380 Alloy price assessment. A total of 10 lots per month traded at 86 cents for August through December 2016; each lot is 44,092 lb or 20 mt, for a total volume of 1,000 mt. The trades were the first since the CME Group launched the contract on June 6, citing industry demand for a hedging tool for managing aluminum alloy risk. The trades were block trades cleared through the CME Clearport platform. 　

　　The nearby bid/offer spread for the A380 contract on the CME's Globex platform has gradually tightened since the contract launched, from 80 cents bid/90 cents offered on June 6, to 82 cents bid/87 cents offered in early July, to 83 cents bid/87 cents offered as of Tuesday.

　　Over the same period, the Platts A380 price has gone from 83.5-85 cents, delivered US Midwest, on June 6, drifting down to 82-84 cents in early July before rising to 82.5-84.5 cents on July 18.
　　Market sources said they had no details on the parties involved in the trade and expressed some surprise at the traded value, given the physical market scenario. "I just heard it was a major player," said a broker. "It seems very high to me, considering where Platts is at and the fact there are still discounts to that number. It seems weird that they would be sitting on fixed price risk up till now and then all of a sudden want to trade. Even now the bid/ask is 83-87, higher than physical."

　　A secondary smelter official agreed that the price of 86 cents seemed a little high, since he still had customers reporting import offers in the high 70s. But he noted that "scrap is tightening" and surmised that it was "probably a consumer who thinks the market is going up. They backed to back it. I would guess producer to consumer. A producer would love to sell at that number."

　　Another smelter source, however, said he would not have traded at 86 cents unless he could have bought the scrap against it and assured a better margin. "I don't think scrap's going to get any cheaper," he said. "There has to be a physical buy on the scrap at some point. I know I'm not locking in margins at today's market. Unless they bought scrap against it ... it's not something I would have done, but it is a calculated risk."

　　The broker speculated that the trade may have been from someone not as close to the day-to-day physical market. The second producer said: "This was obviously someone with a fixed price scenario, probably not automotive. Or somebody ... who just got convinced to give it a spin."

　　The first producer thought maybe a consumer with an order to an end user wanted to hedge raw material costs and had built in a higher sales price. "A trader isn't going to pay that, that's for sure," he said.

　　A diecaster agreed that end users might be the best users of the contract, saying he did not see a need for it at this point. "I do not want another price mechanism -- we just got off the NASAAC," he said, referring to the London Metal Exchange's North American Special Aluminium Alloy contract. He said he thought he could buy NASAAC today at 83 cents or less.