By Dow Jones Business News, October 10, 2013, 06:07:00 AM EDT
By Francesca Freeman and Laura Clarke
LONDON--The new head of the London Metal Exchange Thursday fired a shot across the bows of CME Group Inc. ( CME ),
saying the Chicago-based exchange appears to be "talking up its book" regarding its "opportunistic" aluminum futures
While it is too early to say whether the CME's new physically-deliverable contract poses a legitimate threat to the
LME's aluminum business, the London exchange is likely to have the edge over its U.S. rival in the $90-billion market,
Chief Executive Officer Garry Jones told The Wall Street Journal during LME Week--the annual gathering of the metals
industry in the U.K. capital.
The CME, the world's largest futures market operator, announced its new contract on Tuesday. While the exchange
wouldn't specify a date for the product's launch, it said development was far advanced.
"Of course you've got to take the CME seriously, so I'm not being naive about that, but I think they're probably
talking up their book a little bit at this stage," said Mr. Jones, a former NYSE Liffe CEO who has been head of the LME
for just nine days.
"They say they are very advanced and all the rest of it, but nobody--and I know they might not show it to me--has seen
all the details, so to say they have got industry backing and all the rest of it is a bit presumptuous.
"In any market, the incumbent always has the advantage, and they've had two tries already and the market hasn't backed
it. We'll see what happens," Mr. Jones said.
This is the third time the CME has made an attempt at entering the aluminum space.
The first foray into aluminum came in 1983. At the time the Comex exchange, which is now owned by CME, offered U.S.
investors and manufacturers a dollar-denominated contract, in contrast to the LME's pound sterling-priced offering.
Comex lost this competitive edge in 1987, when the LME launched its own dollar-denominated aluminum contract. The LME,
which draws industrial metals users and producers from all over the world, has historically had much greater trading
volumes than the U.S.-focused Comex, making it hard to draw away traders without a specific edge, such as being the sole
place to offer dollar-priced contracts.
In 1999 Comex returned to the battlefield with a new contract, this time with backing from General Motors Corp. The
plan was to offer U.S. manufacturers a local price benchmark and hedging opportunity. But trading volumes petered out
six months after the launch, despite encouragement by GM to get its suppliers to use the new contract.
By the fall of 2009, when the CME delisted the last of its aluminum futures, nobody had opened a position in the
contract for over a year.
The timing of the CME's announcement was also "opportunistic," coming the day of the LME's annual industry dinner,
said Mr. Jones.
"I think we have industry support, I think we have commitment from the industry to help our business, we have great
distribution and we have the history," Mr. Jones said.
(Tatyana Shumsky contributed to this report.)
Write to Francesca Freeman at firstname.lastname@example.org and Laura Clarke at email@example.com
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.