CME Warrants
Most of the details regarding CME warrants are the same as on the LME as discussed in the prior article. Paying a premium for specific warrants in specific locations, establishing long or short positions to receive warrants or deliver warrants to the exchange, and reasons for delivering warrants onto the exchange are all still applicable for CME warrants. However, there are some differences.
Every lot traded on the CME is also backed by a physical warrant, but CME copper trades in lot sizes of 25,000 lbs, so CME copper warrants are considerably smaller than LME warrants. CME aluminum, lead, and zinc warrants are 25 mt parcels, the same as on the LME. The CME also keeps an updated list of CME-eligible warehouses and CME-eligible brands of metal, but for CME copper, their warehouses are only in the US. So if you are long or short a CME copper future and it becomes prompt, you would either need to deliver or be delivered metal in the US. The CME warehouse locations for aluminum, lead, and zinc extend to Europe and Asia.
The liquidity for warrants on base metals other than copper is extremely low. For example, the total warranted aluminum material globally on the CME warehouse exchange (as of publication) is 15KMT. Compare that to the total number of aluminum warrants in the LME warehouse system of just under 900KMT and you can see the stark difference between exchanges. While the CME is actively increasing their trading volume on a daily basis, it will be some time before they are on parity with the LME when it comes to the other base metals. Even for copper, there are only 16.5KMT registered warrants as of writing, compared to 309KMT warrants on the LME.
Because of the prompt date structure of the CME, sifting for CME warrants is possible, but it looks a bit different than sifting on the LME. You would still establish a large long position in the month you wanted to buy warrants. But because there is only one prompt date per month, you have much less control over whether your particular long positions will be called for delivery each day of that month. The closer you get to the end of the month, the more likely your long positions will be delivered against, but you cannot plan for the exact delivery dates like you can on the LME. Once you have taken delivery of your warrants, the process for either canceling the metal and using it for physical consumption or delivering the warrants back to the exchange is essentially the same as it is on the LME.
