An article in the FT highlighted a recent complaint by the Beer Institute regarding the premiums currently being demanded in the aluminum market. Their complaint lies with the LME and the artificially high contango that exists, driven primarily by LME rules which effectively lock up metal in financing deals for overly extended periods. This complaint should not be taken lightly by the LME, as well as other exchanges whose rules regarding position size and nuances of delivery, favor non-commercial users. It is easy to envision a world in which commercial end users contract directly with producers (several most likely) within some contract pricing mechanism derived off- exchange. This should be of upmost concern to the exchanges as they desperately need the underlying producer output as it is critical to the entire pricing/delivery process.It will be interesting to see how these disputes between commercial and non-commercial commodity participants play out, particularly within the context of a rising rate environment.

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