INTERVIEW-Rusal lobbies for no change to LME warehouse rules-Shanghai Metals Market

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INTERVIEW-Rusal lobbies for no change to LME warehouse rules

Company News 10:33:32AM Oct 09, 2013 Source:SMM

Tue, 8 Oct 16:26:00 GMT

* New rules could drive metal off London Metal Exchange
* Proposed changes need more consultation
* For a TAKE-A-LOOK on stories from LME Week, click on [ID:nL6N0HY0N8]

By Susan Thomas and Polina Devitt

LONDON/MOSCOW, Oct 8 (Reuters) - Russia's United Company Rusal <0486.HK>, the world's largest aluminium producer, is urging the London Metal Exchange to leave its controversial warehousing rules unchanged or risk damaging the whole market, Deputy CEO Oleg Mukhamedshin said on Tuesday.

The LME, the world's biggest marketplace for industrial metals trading, has proposed rules that would force warehouses to release more stocks than they take in if delays of more than three months build up.

Rusal and U.S.-based Alcoa have already called on the LME to release more detailed data on long and short positions as well as inventories, and both want the exchange to delay a decision. [ID:nL5N0H73YD]

The metals warehousing business has stoked controversy as warehouse firms have made money by building up stocks and allowing queues to grow for clients seeking to withdraw material, all the time charging rent for storage.

End users say those steps have caused long wait times in warehouses which have distorted supplies and inflated physical prices to record highs.

But Mukhamedshin said the new rules could drive metal off the LME and make an already opaque market even less transparent.

"We think there is no need to change," Rusal Deputy Chief Executive Oleg Mukhamedshin told Reuters in an interview.

Rusal and Alcoa, the world's second-largest aluminium producer, form a powerful lobby, and the LME's new owner appears to have heeded the call for more transparency.

Hong Kong Exchanges and Clearing <0388.HK> Chief Executive Charles Li said on Monday he was open to publishing detailed reports on the number of commodity contracts held by hedge funds, commercial users and other market participants.

He also acknowledged that whatever changes the LME makes with the warehousing proposal "some people will applaud, others will say it won't make a difference and others will say 'We don't like it at all'."

A decision on the proposal, originally expected this month, could also be pushed into November. If adopted, it will come into effect next April.

"The proposed changes were drafted with no consultation," Mukhamedshin said. "It's important to make sure that all voices are heard because the existing rules have a long history. That is why we think the proposal has to be postponed and more time spent on discussing the consequences."

The 136-year old LME hopes the proposal will head off an escalating crisis over its warehousing policy that has drawn scrutiny from UK and U.S. regulators and ease frustration among industrial users, including beer and can maker MillerCoors LLC and Novelis which manufactures sheet used to make cans.

"They are facing lawsuits and of course they are trying to react, but it's only a small part of the market and it's better not to damage the whole market," Mukhamedshin said.

The LME is also facing a challenge to its dominance in the $54 billion aluminium market. CME Group Inc plans to launch a physically deliverable aluminium futures contract to rival the LME's contract.

Many metal users have complained that record high physical prices are unjustified by supply-and-demand fundamentals. The market is burdened by a massive global surplus.

The premium represents the additional cost of delivering metal from an LME warehouse in Detroit or New Orleans or a producer plant to the Midwest and is paid on top of the LME benchmark.

Producers worry that premiums will fall as a result of the rule changes, hurting their profits while LME prices are close to or below many smelters' cost of production.

Without higher premiums to offset low underlying prices, producers are likely to shutter more capacity to remove the excess washing around the global market, analysts say.


(Additional reporting by Andrey Kuzmin in Moscow; Editing by Veronica Brown and David Evans)

((susan.thomas@thomsonreuters.com)(44-7919627932)(44-207 542 6880)(Reuters Messaging: Reuters messaging: susan.thomas.thomsonreuters.com@reuters.net))

 


 

Key Words:  LMEWEEK RUSAL  

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INTERVIEW-Rusal lobbies for no change to LME warehouse rules

Company News 10:33:32AM Oct 09, 2013 Source:SMM

Tue, 8 Oct 16:26:00 GMT

* New rules could drive metal off London Metal Exchange
* Proposed changes need more consultation
* For a TAKE-A-LOOK on stories from LME Week, click on [ID:nL6N0HY0N8]

By Susan Thomas and Polina Devitt

LONDON/MOSCOW, Oct 8 (Reuters) - Russia's United Company Rusal <0486.HK>, the world's largest aluminium producer, is urging the London Metal Exchange to leave its controversial warehousing rules unchanged or risk damaging the whole market, Deputy CEO Oleg Mukhamedshin said on Tuesday.

The LME, the world's biggest marketplace for industrial metals trading, has proposed rules that would force warehouses to release more stocks than they take in if delays of more than three months build up.

Rusal and U.S.-based Alcoa have already called on the LME to release more detailed data on long and short positions as well as inventories, and both want the exchange to delay a decision. [ID:nL5N0H73YD]

The metals warehousing business has stoked controversy as warehouse firms have made money by building up stocks and allowing queues to grow for clients seeking to withdraw material, all the time charging rent for storage.

End users say those steps have caused long wait times in warehouses which have distorted supplies and inflated physical prices to record highs.

But Mukhamedshin said the new rules could drive metal off the LME and make an already opaque market even less transparent.

"We think there is no need to change," Rusal Deputy Chief Executive Oleg Mukhamedshin told Reuters in an interview.

Rusal and Alcoa, the world's second-largest aluminium producer, form a powerful lobby, and the LME's new owner appears to have heeded the call for more transparency.

Hong Kong Exchanges and Clearing <0388.HK> Chief Executive Charles Li said on Monday he was open to publishing detailed reports on the number of commodity contracts held by hedge funds, commercial users and other market participants.

He also acknowledged that whatever changes the LME makes with the warehousing proposal "some people will applaud, others will say it won't make a difference and others will say 'We don't like it at all'."

A decision on the proposal, originally expected this month, could also be pushed into November. If adopted, it will come into effect next April.

"The proposed changes were drafted with no consultation," Mukhamedshin said. "It's important to make sure that all voices are heard because the existing rules have a long history. That is why we think the proposal has to be postponed and more time spent on discussing the consequences."

The 136-year old LME hopes the proposal will head off an escalating crisis over its warehousing policy that has drawn scrutiny from UK and U.S. regulators and ease frustration among industrial users, including beer and can maker MillerCoors LLC and Novelis which manufactures sheet used to make cans.

"They are facing lawsuits and of course they are trying to react, but it's only a small part of the market and it's better not to damage the whole market," Mukhamedshin said.

The LME is also facing a challenge to its dominance in the $54 billion aluminium market. CME Group Inc plans to launch a physically deliverable aluminium futures contract to rival the LME's contract.

Many metal users have complained that record high physical prices are unjustified by supply-and-demand fundamentals. The market is burdened by a massive global surplus.

The premium represents the additional cost of delivering metal from an LME warehouse in Detroit or New Orleans or a producer plant to the Midwest and is paid on top of the LME benchmark.

Producers worry that premiums will fall as a result of the rule changes, hurting their profits while LME prices are close to or below many smelters' cost of production.

Without higher premiums to offset low underlying prices, producers are likely to shutter more capacity to remove the excess washing around the global market, analysts say.


(Additional reporting by Andrey Kuzmin in Moscow; Editing by Veronica Brown and David Evans)

((susan.thomas@thomsonreuters.com)(44-7919627932)(44-207 542 6880)(Reuters Messaging: Reuters messaging: susan.thomas.thomsonreuters.com@reuters.net))

 


 

Key Words:  LMEWEEK RUSAL